Kessler on Stanley's Sonitrol acquisition

June 12, 2008 -- SecurityInfoWatch.com just hung up the phone with long-time security industry analyst Jeff Kessler, who many in the industry knew from his days at Lehman Brothers before he went independent this last year. Kessler took the time to weigh in on the forthcoming acquisition of Sonitrol by The Stanley Works and how Sonitrol will fit into Stanley's Convergent Security Solutions business unit. Here are his thoughts, excerpted from our conversation:

Kessler on the overall focus for Stanley in the security space…

They certainly are moving away from their traditional business of hardware and moving towards security. They were going to get beaten up by big box retailers on hardware prices. It's smart for them to get into sercurity services area as oppposed to the door hardware business.

The fact is that I think this is what Brett Bontrager [president of Stanley Convergent Security Solutions] wants. They bought installation businesses to take advantage of the equipment they already made and sold. But they were installation business that didn't give them great margins and returns. The acquisition of HSM got them into the recurring revenue side of the business and it gave them the ability to go back to their customers and offer them monitoring. It looks like they bought HSM because it was the glue that allowed them to pull together their installation and hardware businesses…

Currently security is somewhere around 35 percent of Stanley's business, and now about a third of that is recurring revenue driven. The Sonitrol acquisition will boost both of those numbers.

On the value of the Sonitrol brand…

They have a sterling reputation for audio and video verification. They get the best police response to an alarm. No one else gets that response. That is the brand that Stanley has bought.

On the importance of understanding that Sonitrol is a franchise organization…

Sonitrol has been built around a franchisee system. This franchise relationship is very important. Automated Security Holdings [a firm out of the UK] formerly owned Sonitrol. Then ASH was sold to ADT around 1997, and the relationship between Tyco and the franchises wasn't good. They felt like they were being forgotten.