The security industry's big break

Despite the remnants of the sub-prime lending crisis, an economy in recession and lenders who don't seem to want to open their pocket books without a vise grip, the security alarm industry is ripe with opportunity for systems integrators who need funding to expand their business or keep their assets liquid.

Dealer programs are all the rage as systems integrators look for new ways to pump money into their businesses with recurring monthly revenue (RMR) and perhaps offset a lower installed base of systems or equipment. As has generally been the case, dealer programs offer a number of different types and flavors, variables that can be adeptly suited to the integrator and their customer mix. While the jury is still out as far as which dealer programs are best for participants-those which retain the equity in their accounts or those which buy the customer accounts outright-the bottom line is that both put ready cash into the hands of systems integrators and allow them to grow or stay afloat during tough times. They also provide marketing tools and support, training and education and even design and specification support.

Traditional lending institutions such as banks can't quite wrap their arms around the security industry. But they are beginning to understand that RMR is the lifeblood of the industry and it's more than security; that value-added solutions, coupled with service and maintenance contracts, may make lending or providing financing to the market a smart move.

New options emerge

PSA Security Networks, Westminster, Colo., recently unveiled an exciting equipment and installation program for members and non-members in conjunction with Integrator Support(r) and Susquehanna Commercial Finance(r) called Project Financing. It enables end-users to acquire the latest technology with flexible payment structures, no down payment and the ability to preserve their credit lines.

"This is a new way to think about our industry," said Bill Bozeman, president and CEO of PSA. "Security integrators have always struggled with cash flow and project sticker shock and this program not only gives the end-user flexibility but provides the integrator the ability to continue the business relationship."

Loosen up capital

The sought-after managed-services business model that generates recurring monthly revenue (RMR) is another key component of this program. Until now, the burglar alarm model that offers end-users a low upfront cost and generates a predictable recurring revenue stream has been unattainable for the systems integration community. With this program integrators can finance the ramp up to managed services, said Bozeman.

"The program, along with Integrator Support's dealer program, simplifies the implementation of RMR generation for integrators," said Sharon Shaw, vice president of Integrator Support. "The combination of Project Financing with remote video surveillance monitoring, hosted access control, and/or other managed services allows systems integrators to competitively market RMR-generating services through monthly payments and ensures they get paid on time."

There are other pluses. It's easier for the end-user to budget for the costs and easier to sell payments rather than one large lump sum. It may also help the integrator who goes into a bid process compete more effectively when they can offer monthly payments, something the competition may not be able to offer. Finally, it also conserves cash for the end-user as well.

"The integrator benefits from an easier sale and still owns the contract for the account," Shaw added.
John Busardo, a veteran of the financing industry, heads up PSA Security Network's Project Financing program. "We have the right recipe for success here," said Busardo, adding that the program is not traditional leasing, but financing at an extremely low simple interest rate on the entire loan amount. "Integrators can finance a percentage of the hard end of equipment costs and keep their capital and money liquid. They get the money upfront and can add a warranty. From start to finish, the integrator can get approval within hours once they complete the necessary paperwork," he said.

Room to grow

Busardo added that the advantages are as soon as the customer accepts the loan. "They have an open line of credit and can do upgrades and add-ons easily, extending the term or increasing the amount of their monthly payment. This is a tremendous feather in the cap of PSA and the integrators to be able to offer a program of this magnitude."

Project Financing can include equipment, labor, warranties, maintenance and even monitoring. End-users simply make one monthly payment for all related services. "It's a true finance that allows customers to pre-pay with no penalty after one year. Security integrators have always struggled with cash flow and project sticker shock. This program not only gives the end-user flexibility but provides the integrator the ability to continue the business relationship," Busardo said.

"Our role is to work with PSA's system integrators and customers to find the best solution for them," said Donna Wesemann, CLP, vice president of Sales, Susquehanna Commercial Finance, Pottstown, Pa. "We have a fine focus on the needs of the construction community and knowledge of the industry. Project Financing gives integrators a specialty finance program and sales tools to help sell equipment. The opportunity is a snowball rolling downhill. They can bring in new customers and then keep repeating business with those accounts. The payment is pulled into one neat package--equipment, monitoring and maintenance and gives them a new way to sell equipment and services. It's a home run all around," Wesemann added.

The bottom line

The key to any financial service program is the ability to generate additional recurring monthly revenue, according to Paul Sargenti, president and CEO of SAFE (Security Alarm Financing Enterprises) Security, San Ramon, Calif..

"With a solid RMR model, there is a fairly dependable cadre of senior lenders to the industry," said Sargenti. "Although the business continues to be robust, the lending tends to be more cautious. The credit and banking meltdown have resulted in a much more conservative lending environment and new regulations," he said.

Sargenti said dealers in the SAFE program sell the accounts but retain an economic interesting by keeping the service contract. In addition, when a customer account goes into renewal, the systems integrator receives a bonus component.

"SAFE Security changed in 2004 to a more hybrid operating model. We believed we could serve our customers best by really controlling the customer experience. Before that it was much more transparent. We are out in front of our customers today. We do dispatching and scheduling and monitoring. We have a network of 265 dealers nationwide who are partners, but we still control the customer experience. We schedule all the upgrades and add-ons."
Despite the news accounts about the depressed economy, Sargenti said it's no time for the integrator to be timid about their business. "Get organized, talk to lenders and explain the business. If you don't succeed the first time, don't give up. There is liquidity in the marketplace for those who can explain their business and how they intend to make it grow," he said.


Looking at the landscape of lending, R. Anthony "Tony" Smith, president of private investment banking firm Security Finance Associates Inc., Pasadena, Calif., said a fair amount of creditors are currently loaning against acquisitions and growth. He said he hasn't seen new banks and entities coming into the industry, only because it requires background knowledge of the industry, which most don't have. However, "the mergers and acquisitions business is quite fluid lately and the multiples of monthly recurring revenue are actually higher than what the industry has historically seen," Smith commented.

Other financing techniques, such as leasing and dealer programs remain active, according to Smith. "Leasing is still a small percentage and is generally done on a 'one-off' basis. The dealer programs are growing dramatically. They provide financial and marketing tools for smaller companies."

"Financing is tied to lending at a multiple of RMR," Smith continued. "If a dealer can increase RMR they have additional lendable collateral that will be helpful as they need to expand their credit. The alarm industry is proving again it's as recession proof as any industry could possibly be. The bottom line is that smart dealers are looking at ways to grow their RMR."