Last month, Monitronics International entered into an agreement to acquire Florida-based alarm dealer Security Networks for more than $500 million. The transaction, which was finalized earlier this month, gives Monitronics more than one million accounts and a network of over 600 dealers.
At the time of the sale, Security Networks had grown to become the 14th largest security firm in the U.S. In fact, the company has placed in the top 10 of Security Dealer & Integrator magazine’s Fast 50 list of America’s fastest growing systems integrators in each of the last two years.
Richard Perry founded the company in 2000 and served as its’ president and CEO throughout the company’s 13-year history. SIW recently caught up with Perry, a 27-year veteran of the security industry, to discuss how the industry has changed, how he was able to grow his business during lean economic times and what the future holds for him as an entrepreneur.
SIW: How did you build Security Networks into a half-billion dollar enterprise?
Perry: I started Security Networks in 2000 and really what I was trying to do at that time was exploit what I thought were market opportunities that were based on the fact that the industry was coming out of a period of a lot of consolidation. ADT had been a big acquirer in the 90s and I just felt like there was a new opportunity to grow a significant business in the industry. We really started our growth spurt around 2005 when I raised some private equity and decided to take the business on a much larger scale and beyond just the South Florida region and that’s when I launched the affiliate program. The affiliate program really allowed us to grow rapidly because it employed the model where we didn’t have to invest in brick and mortar (locations). I partnered with independent alarm companies around the country that sold security systems on our behalf, so it was a very clean business model and one that allowed us to grow rapidly. Others have done similar dealer programs, but I do certainly think we improved upon the companies that did it prior to us and created a version of it that was very attractive and attracted a lot of affiliates over and allowed us to grow very rapidly from that point forward.
SIW: How have you seen the alarm industry grow and evolve through the years? How has the competitive landscape changed?
Perry: It has really changed a lot. When I think several years back, it was a much smaller industry and more off-the-radar in terms of the financial world and large corporations. Even today it is still a very fragmented industry… but because of the way it grows and the fact that it has been a very recession-resistant business, it has certainly caught the attention of telcos, cable companies, large private equity firms and all of the firms that you see in it today have, over the last 10 to 20 years, slowly started to recognize the fact that this is a (profitable) business. I think I’ve seen it morph over that period of time into a larger business with a lot more visibility. Of course today you can’t turn on the TV without seeing an ad for an alarm system – whether it’s ADT, Comcast or whomever. It is much more high-profile today that it was 25 years ago.
SIW: What kind of advice would you give other dealers about growing their own businesses?
Perry: First of all, it is a very capital-intensive business. Because it is based on a recurring revenue model, most companies invest in their customers and that requires a lot of capital. What I’ve always said is whatever you think you need in terms of capital; it’s probably going to be four times that because everyone always underestimates the capital requirements in the business. That’s something that I’ve certainly lived through in my career and something I’ve learned. It is also a very service-oriented, labor intensive business. We’re service companies – it’s life safety and so it’s a service that’s emotional for the customer and I think that’s one of the reasons why it has always been dominated by small companies because small companies typically can provide very high levels of service and be very responsive to their customers. This is an industry that really demands that, so I think that’s something any operator has to really focus hard on.