Straight from the meeting tables at the 2008 Barnes Buchanan Security Alarm Conference, held earlier this month at the beautiful Breakers in West Palm Beach, Fla., -- the security industry is still the darling of the business services sector and despite some of the doom and gloom overshadowing other markets, this industry's future is portrayed as stable with the overall outlook good.
Equity investors and financial companies are still attracted by the industry, its unique nature and of course, its ability to generate monthly recurring revenue. While they still see it as highly fragmented, they like its prospects and have money to spend, but are more careful than ever as far as where they place their capital, commented Michael Barnes during his presentation, "The Alarm Industry and Market Overview."
Barnes is one of the organizers of the annual conference and founder of investment banking firm Barnes Associates in St. Louis. He directs the Mergers and Acquisitions division of the business and is often privy to some of the most recognized deals in the industry.
Strong and steady is how Barnes went on to describe the security alarm business. "We're just amazed at the resiliency of the industry," he added. "We're in a bullish market now, but we are skeptical that we'll ever quite be back to the former levels we saw in 1997," he said.
"Fundamentally, the alarm industry just doesn't change," Barnes told a packed audience on the second day of the conference.
Caution, however, is in the air. One of the biggest determining factors that may keep the industry relatively healthy is low interest rates that make the cost of borrowing money relatively affordable, Barnes asserted.
There are a lot of smaller companies to be acquired but buyers are more discriminating on what they are going to buy and that's going to continue. Central station companies are most attractive and recurring multiples of revenue varies, with an ultra-high 50 being thrown out for discussion as a possible multiple for a top-in-its-class company.
Also on the minds of attendees, some of the largest alarm and central station companies in the country: the AMPS sunset clause. Analog cellular services (known as AMPS) used by many alarm systems went all-digital mid February. Because of the lower cost and other benefits of digital technology, the major telecommunication companies plan to phase out AMPS service. A 2002 ruling by the FCC, known as the AMPS sunset clause established the "sunset" date of Feb. 18, 2008-- allowing cellular carriers to discontinue AMPS service. Most alarm companies in attendance felt comfortable that they will be or are already were ready for their cellular service moving from analog to digital. But it hasn't been easy. It has taken Patrick Egan's Select Security, Lancaster, Pa., months of careful planning and a considerable investment in labor.
One thing is certain: things are changing when it comes to transmitting an alarm signal. For more on the conference check out the news section of SD&I's March 2008 issue. For additional information on Barnes Buchanan, visit www.barnesbuchanan.com.
