February 2011 Vol. 33 No. 2
• Annual Industry • M&A Mavericks • How to Sell Investing and FINANCIAL ANALYSIS
Explain Their ACQUISITIVE WAYS
Service That Builds COMPANY VALUE
TECH UPDATE:
3 WAYS TO DEPLOY NETWORKED ACCESS CONTROL
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February 2011 CONTENTS Vol. 33, No. 2
SSI’s annual overview of the market’s security industry stocks and financial health identifies which companies were the big winners and losers in 2010, plus much more.
— See page 32
❮❮ SPECIAL SECTION: The Business of Security Issue
◗ COLUMNS
Investor Bulls Trample the Bears 32 Security Publicly traded security companies continued positive perfor-
8 Between Us Pros With Scott Goldfine Defeating the DIY interlopers in our midst.
mance for the second straight year, even outperforming major U.S. market indexes. Robust M&A activity spurred growth and consolidation in 2010, with more of the same projected in the coming year. By Walter Bailey
Execs Shop for Strategic Buys 38 Savvy Economic turbulence has caused many installing security companies to take a conservative approach to M&A. A select few, however, remain active in pursuing strategic growth initiatives. Four executives explain why their businesses continue to acquire. By Rodney Bosch
With a Recurring Revenue Smile 46 Service Service and maintenance agreements have become a leading weapon to fend off economic evils while helping security companies survive to grow another day. Discover their advantages and how to successfully integrate them into your business. By Scott Goldfine
Enterprise-Class 52 Building Access Solutions
Get schooled about network-based storage systems.
24 Tech Talk With Bob Dolph Making the migration to IP and wireless technologies.
28 Fire Side Chat With Al Colombo Network technology fit for fire/life-safety communications.
30 Monitoring Matters With Kevin Lehan Concerns about state licensing laws for central stations.
66 The Big Idea With Ron Davis Protecting your RMR from new industry entrants.
❯❯
68 Legal Briefing With Ken Kirschenbaum Price fixing and other disreputable acts.
Most technologies that communicate or transmit data are either moving onto IT networks or have already done so. Commercial access control is no exception. Gain the knowledge to meet this increasing demand while prospering in the process. By Mark Allen
◗ DEPARTMENTS
Cover photo ©iStockphoto.com/DNY59
2
22 Convergence Channel With Steve Payne
4 13 58 61 67
Security Exchange Industry Pulse Ad Index The Essentials MarketPlace
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Security Exchange Web Watch
RIGHT
NOW ON
securitysales.com SYSTEMS INTEGRATION CHANNEL
securitysales.com/Channel/ System-Integration.aspx One of the seven targeted channels (others are Business Management, IP / Video Surveillance, Access Control, Fire/Life Safety, Intrusion, Vertical Markets) of SSI’s newly redesigned Web site, this section is dedicated to everything related to integrated security and control systems and solutions. The channel includes industry and business news, trends and technology features, installation case studies,
application articles, product notices, expert columns, blogs and much more. Whether it’s tying together access control, video surveillance, intrusion detection, fire/life safety systems, networks, automation or other building controls; video management systems (VMS); data analytics; IT network technologies; convergence trends; open vs. proprietary platforms; interoperability issues; standards development and updates; training; working with IT managers; etc.
— you’ll have all the info you need at the click of a mouse. Join others who are equally serious about this cutting-edge market by making the Systems Integration Channel one of your primary online destinations.
WEB-O-METER
Ascent Media Corp. Acquires Monitronics for $1.2B
Samsung Splits from Master Distributor GVI Security
Rodney Bosch Managing Editor, ext. 426 Al Colombo, Ron Davis, Bob Dolph, Steven Gibbs, Steve Payne, Bob Wimmer, Jeffrey Zwirn Contributing Writers
Scott Goldfine Editor-in-Chief 114 Chatworth Lane Mooresville, NC 28117 (704) 663-7125 Fax: (704) 663-7145 Ashley Willis Associate Editor, ext. 419
Sr. Production Manager Sarah Paredes, ext. 497 Art Director Margery Young Audience Marketing Manager Bill Ciesielczyk
5 most-viewed news stories during December
School Burglarized by Security Company Owner, Employees
Peggy Onstad Publisher, ext. 477
Staff E-mail addresses are firstname.lastname@security sales.com (e.g. scott.goldfine@securitysales.com) Contributors‘ E-mail addresses are secsales@bobit.com. HOW TO CONTACT ADVERTISING & MARKETING
■ West
■ East
Dynise Plaisance 3520 Challenger St. Torrance, CA 90503 (760) 519-5541 Fax: (310) 533-2502
Tara Schelling 2738 Furlong Road Doylestown, PA 18901 (215) 794-7015 Fax: (215) 794-7756
ADVERTISING SALES TERRITORIES
Service & Maintenance Contracts to Become Big Piece of Integration Market
Jon Sargent Honored for Career Achievement at CAA Winter Convention Classified-MarketPlace Ads Peggy Onstad, (310) 533-2477
SECURITY SCANNER®
Security Scanner Web Poll Question: ®
What impact do you believe the recent midterm elections will have on your business? SIGNIFICANT IMPROVEMENT
SOME IMPROVEMENT
ANY CHANGE IS WELCOME
DON’T EXPECT MUCH DIFFERENCE
LOOK OUT; IT’S GOING TO GET WORSE
14% 27% 27% 23% 6% Nearly seven in 10 respondents (68 percent) to the December Web poll view the Republican Party’s increased presence in the U.S. House of Representatives, Senate and gubernatorial positions as a positive following November’s midterm elections. This is not too surprising considering SSI’s 2010 Security Industry Demographic Census (published in the March issue) showed 61 percent of respondents identified themselves as supporters of the Grand Old Party. Log onto securitysales.com to view SSI’s Security Scanner archives as well as cast your vote for the February question: What percentage of your service calls are callbacks? BLOGS
EDITORIAL ADVISORY BOARD Ed Bonifas, Alarm Detection Systems, Aurora, Ill. Bill Bozeman, PSA Security Network, Westminster, Colo. Shandon Harbour, SDA Security, San Diego Jim Henry, Henry Bros. Electronics, Fair Lawn, N.J. Michael Jagger, Provident Security, Vancouver, British Columbia, Canada John Jennings, Safeguard Security and Communications, Scottsdale, Ariz. Sandy Jones, Sandra Jones and Co., Chardon, Ohio J. Matthew Ladd, The Protection Bureau, Exton, Pa. Mike Miller, Moon Security Service, Pasco, Wash. Joe Nuccio, ASG Security, Beltsville, Md. Alan L. Pepper, Mitchell, Silberberg & Knupp LLP, Los Angeles Eric Yunag, Dakota Security Systems, Sioux Falls, S.D. HOW TO GET YOUR NEWS TO US E-mail: secsales@bobit.com Mail: 3520 Challenger St., Torrance, CA 90503 Fax: (310) 533-2502 FOR SUBSCRIPTION INQUIRIES (888) 239-2455
www.securitysales.com/blog
SECURITY SALES & INTEGRATION WEB SITE securitysales.com
Some of the things we’re talking about …
• Bigger Isn’t Always Better — Be Mindful of the Category Rating • Remembering Why You’re in the Security Business • CAA Winter Convention Symposium Highlights Industry Challenges, Threats • And You Thought Full-Body Scans Were Bad Enough ...
Engage in the conversation! 4
For the latest news as it happens, sign up for SSI’s eControl Panel at securitysales.com
BOBIT BUSINESS MEDIA Edward J. Bobit, Chairman Ty F. Bobit, President & CEO (310) 533-2400 Printed in USA
Winner • 2005 Finalist • 2003, 2004, 2005, 2006, 2007, 2008, 2009
securitysales.com • FEBRUARY 2011
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I read with interest Scott Goldfine’s December column (“Taking Life Safety Personally”; also online at securitysales.com/betweenuspros/dec2010). I congratulate him! While he mentioned at one point in the article that the “pounds melted away,” that is only true when you get “in the zone,” which when using the Weight Watchers program is through a disciplined approach to healthy eating as part of a healthy lifestyle. That takes work and commitment (whatever the motivation), and for that Mr. Goldfine is to be commended. As he very accurately stated, “It’s not about dieting: it’s about permanently changing your relationship with food.” (And exercise, I might add.) As a WW member for almost a year, I also have achieved some good results — not as dramatic as Mr. Goldfine’s in weight loss, but I am within 10 pounds of my goal weight and have a much more active lifestyle and checkup results to show for it. I am also now much more nutritionally educated so I can make much better food choices — particularly while I’m on the road and at seminars, conventions, etc. Your article has reminded me that it’s time to ratchet up a notch and bring my WW goals home in full before the end of Q1 2011. Thanks for the added motivation! JOEL ILTEN, Vice President; National Accounts DH Pace Co. Inc. North Kansas City, Mo.
Thank you so much for your feedback and perspectives. Yours was one of many similar letters and phone calls from readers for who this subject really struck a chord. — Ed.
Sargent Earns a Salute
To receive your subscription to SECURITY SALES & INTEGRATION in digital format simply visit us at:
www.securitysales.com/digital
[Commenting on the news story, “Jon Sargent Honored for Career Achievement at CAA Winter Convention”] Congratulations, Jon! How many more awards can you get? It’s great to see someone who really worked in the trenches on the false alarm issues get such recognition. The industry owes you much — possibly its very existence! ONLINE COMMENT from Tony Fague securitysales.com/JonSargent
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Between Us Pros
Defeating LifeShield’s DIY Game Plan
S
o I’m watching the NFL Network (are any other TV channels really even necessary?) and up pops a commercial featuring Hall of Fame Quarterback and current CBS commentator Dan Marino. I initially tune out because A) I’m not a Miami Dolphins fan, and B) I figure it’s another one of the
By Scott Goldfine scott.goldfine@ securitysales.com.
the protection of his wealth and loved ones? Call me a skepNutriSystem spots Marino has done for some time. However, tic, but I kind of doubt it. it turned out to be for a security system. It was for LifeShield Plus it’s one thing as a former athlete to pitch weight Security, a new company headed up by former NutriSystem loss and fitness products — but security? Spare me. Just CEO Michael Hagen. Talk about strange bedfellows. because Marino could throw a tight spiral does not qualAn official press release from the company reads: “Forify him to pitch anything and everything. If you are going merly called InGrid Home Security, LifeShield is also the to go the celebrity route it would make more sense to use first national, professional grade and professionally monia person who has some astored wireless security system sociation with security or that is easy to set up through a Are you concerned about safety, say Tom Ridge, Wilsimple ‘plug and protect’ proLifeShield Security or its approach? liam Bratton or John Walsh cess. LifeShield also boasts Is it an affront to the legitimacy for example. It’s called superior protection as well of security systems, or is it a credibility. as being the best value in legitimate threat to the very As an industry profeshome security. LifeShield offoundation of the business? sional, from both represenfers all of the services of the tational and competitive major national home securistandpoints, are you concerned about LifeShield Security ty brands, in an industry-first wireless platform, and at half or its approach? Is it an affront to the legitimacy of securithe price.” ty systems, or is it a legitimate threat to the very foundation The release for the firm, which originally began its exisof the business? Could this be the wave of the future in the tence in 2002 as InGrid Home Security and recently raised residential marketplace where traditional dealer approach$11 million in investment capital, also quotes Hagan as es have largely stagnated since mass marketing helped pensaying, “There is a huge opportunity to deliver cost savings etration levels peak at around 20 percent? That is surely back to consumers who have been getting slammed by nawhat Hagan and his backers believe. tional security companies for years, simply because there I say: FAT CHANCE! was no affordable, trustworthy option.” Campaigns like this can be flipped on their heads to the Wow, them is fighting words! The company’s brazen benefit of the entire industry by exceeding the reach of approach includes a promotion on the home page of its most professional security providers to create heightened Web site that reads: “Don’t be fooled by ADT! Pay less ... awareness about security among consumers nationwide. get more!” It offers $199 and $299 residential do-it-yourThe surefire way to combat an aggressive go-to-market self (DIY) kits with free shipping and monitoring priced at strategy such as this is to deliver superior customer ser$29.99 per month that can be easily ordered online, and revice and custom-tailored solutions. I’m also certain the inquires no annual contract. In a head-scratching alliance, cidence of false alarms is less for professionally installed Pittsburgh-based Guardian Protection Services provides systems vs. DIY. Stress value, responsiveness and expertise the monitoring services. while charging a fair price and you will do just fine. In the TV commercial, Marino says how with LifeShield In doing so the result in favor of the industry may well there is “No pushy salesperson and no technician in your prove more decisive than Marino’s 38-16 loss to San Franhome.” Hmm, didn’t like him much as a Dolphin and that cisco in Super Bowl XIX. isn’t helping. He claims to be a LifeShield customer. Maybe ■ he is, but do you really believe a celebrity with his level of Editor-in-Chief Scott Goldfine has spent more than 12 years with SECURITY SALES & INTEGRATION. He can be reached at (704) 663-7125 or scott.goldfine@securitysales.com. visibility eschews hiring a true security specialist to ensure
8
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Get certified at ISC West! Visit Axis Booth #18051 for more details. www.securitysales.com/freeinfo/12308
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Industry Pulse In Depth
CSAA Voice Mail Fraud Losses a Warning to All Businesses
©iStockphoto.com/code6d
“Many businesses are negVIENNA, Va. — Steve Doyle, ligent in getting the propCEO and executive vice preser security they need or takident of the Central Station ing the necessary safeguards. Alarm Association (CSAA), They continue to have holes has some cautionary advice to in their systems,” he says. share with his electronic secuThe first line of protection rity brethren. The telephone from hacking is to change the voice mail system at your comphone system’s default passpany could be a gateway for a words that come preset by the fraudster to hack into and rack vendor. Evans suggests comup costly international calls. panies should program the A hacker who infiltrated voice mail system to automatCSAA’s voice mail system in ically prompt employees to December placed overseas Businesses are urged to take appropriate safety measures to thwart calls that amounted to about hackers from infiltrating voice mail systems that can be used to place change their passwords every $300. Doyle considers the as- costly international phone calls billed to the company’s phone system. 90 days at a minimum, and never use obvious passwords sociation lucky not to have such as an address, birth date or phone has been hacked. The operator — suffered worse losses. He urges the innumber. Unused mailboxes, such as sometimes an automated function dustry’s thousands of installing securiwhen an employee leaves the company, programmed to act on key words like ty contractors to take precautions beshould be deleted immediately. “yes” — hears the outgoing message fore they can be victimized as well. “You should also restrict call forand the collect call is connected. “I’m not as concerned about the warding and conferencing features if Hackers oftentimes target compafew hundred dollars as I am makthey are not being used, since these nies, especially toll-free customer sering sure we’re locked down tight so it functions can assist hackers in forwardvice lines, during holidays and weekdoesn’t happen again for thousands ing calls on your dime,” Evans says. ends when tampering is more likely to of dollars,” he says. “Businesses and Expecting a phone service providgo unnoticed. Similar to CSAA, many trade associations across the United er to forgive fraudulent international victimized organizations don’t learn States are being hit much, much hardcharges is not a likely scenario. Many about the hacking until their phone er than we suffered.” service contracts include language company calls to report unusual activAccording to the FCC, while voice that absolves the phone company of ity or especially high phone bills. mail fraud is not a new phenomenon, responsibility in the event of telecom“Fortunately [our service provider] offenders incessantly plague organimunications fraud. Small businesses notified us on a Monday morning that it zations of all sizes with little difficulare the most vulnerable. looked like there had been fraud in the ty. The hacker will call into a voice “Phone companies do a pretty good system. Somebody was placing calls to mail system to find mailboxes that job of alerting their large customers Somalia, so they shut it down,” Doyle can be accessed by default passwords if they are getting billed for internasays. “It was a pain for us because we or passwords with familiar combinational locations that can be considwere out of service for an entire day.” tions, such as 1-2-3-4. Upon locating ered out of the ordinary,” Evans says. Businesses with legacy PBX and key a target mailbox, the hacker can then “But the mom ‘n’ phone systems are especially vulnerause the password to access the phone Industry Pulse pop shops are the ble, although mailbox attacks on voice system and place calls. AT A GLANCE ones that are vicover IP (VoIP) systems are becomHere’s how: first the hacker changes the outgoing message on the voice mailbox to “Yes, I will accept the charges” or similar. The hacker then dials a collect call to the number that
ing more prevalent, says Mark Evans, CEO of BottaBoom Consulting LLC, a national telecom auditing firm based in Tucson, Ariz.
timized a lot of the time. They are going to get stuck with a fat bill.”
In Depth......................... 13 News.............................. 14 Hot Seat ........................ 16 DataBank ....................... 18 Company News ............. 20
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Industry Pulse Industry News
APX Alarm Acquires to Expand Energy Management Solutions PROVO, Utah — Marking its first acquisition in its 11-year history, APX Alarm Security Solutions Inc. acquired Meter Solutions, an independent provider of smart meter technologies. Terms of the deal were not released. Orem, Utah-based Meter Solutions specializes in the installation of automated metering infrastructure (AMI) systems, a technology that automatically collects data from water, gas or electronic meters and wirelessly transmits the information to a central database used for billing and analyzing. Meter Solutions approached APX Alarms about merging last year as a result of the alarm company’s focus on in-home energy management
Installers No Longer Bound by Energy Efficiency Standards WASHINGTON — Installing security contractors gained relief from certain energy efficiency mandates after President Obama signed into law a bill that provides an exemption from the “no-load” requirements for security and life-safety products. Energy efficiency standards originally outlined in the Energy Independence and Security Act (EISA) of 2007 applied to security and life-safety devices — such as video surveillance and access control systems — despite always being set in “active” mode. The Security Industry Association (SIA) organized a coalition that included both industry and environmental groups to draft legislative language and advocate for a fix. In January Obama signed into law H.R. 5470, which provides an exemption from the efficiency requirements for security and lifesafety products while retaining EISA’s active mode efficiency standards for those devices. “This is a very important fix for the security industry,” says SIA Director of Government Relations Don Erickson. “It’s a common-sense measure that is good for both business and the environment, as is demonstrated by our coalition partners.”
and smart grid solutions, APX Alarms COO Alex Dunn tells SSI. “One of the components for our inhome energy management and energy analytics solutions is connecting to a smart meter so the consumer can see data from the meter and usage,” he explains. “Since Meter Solutions installs smart meters for utilities, it just made a whole lot of sense for us to do an acquisition.” As a result of the deal, APX Alarms will expand its smart grid division, which the company established last year, by continuing to add more people to its team, Dunn says. “We are excited to see the evolution of home automation and smart
APX Alarm (above) will look to expand its home automation services after recently acquiring Meter Solutions of Orem, Utah.
grid technologies as they begin to work hand-in-hand,” he says “This acquisition is a continuing commitment to really focus on consumer-related energy management and utilities solutions.”
◗ Survey: Many Retailers Considering Move to IP-Based CCTV CHELMSFORD, Mass. — According to the Loss Prevention Research Council (LPRC), 87 percent of retail companies that currently use analog surveillance technology are considering a migration to network video. Titled “Surveillance Survey Report” and sponsored by Axis Communications, the survey queried loss prevention executives from 49 national and regional retail businesses about the use of video surveillance technol-
ogy, IP-based versus analog systems, and the effects CCTV has had on loss prevention, among other topics. Results showed that almost all companies (98 percent) currently deploy video surveillance in their stores; however, only 25 percent of respondents said they had an all IP-based surveillance system. Nearly 42 percent of survey participants reported high cost as the reason for not deploying IP video technology.
“Our research indicates that retailers have plenty of opportunity to expand their surveillance systems to go far beyond loss prevention, especially if and when they switch to IP,” says Dr. Read Hayes, director, LPRC. “It is great to see positive results from the overall effects of video surveillance regarding safety and crime prevention, but it’s evident that the more areas of a retailer’s business that can utilize video surveillance, the greater the ROI.”
Chicago-Area PSAP Forgoes Monitoring Operation CHICAGO — A public service answering point (PSAP) for three Chicago suburbs has decided not to monitor business emergency alarms due to lack of funds. Tri-Com Central Dispatch had explored the possibility of entering into the alarm monitoring business; however, after realizing it had fewer accounts than expected it determined the option was not economically viable. The Central Station Alarm Association (CSAA) and other industry groups have worked to oppose municipalities that would compete with private monitoring companies. “This is the second victory of this battle, but the war is not won,” says CSAA Past President Bob Bonifas, president of Aurora, Ill.-based Alarm Detection Systems. “We need to continue to organize our forces until this effort to municipalize and monopolize the fire alarm monitoring business is finished for good.”
14 securitysales.com • FEBRUARY 2011
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8OO. 558.7767 www.rrms.com AL: 440 AR: E 2004 0004 CA: ACO 5498 FL: EF0000964 IL: 127-001246 OK: 648 OR: 0183 RI: 5875 TN: 834 TX: B09590 TX Fire: ACR-2020 VA: 11-2850 www.securitysales.com/freeinfo/12105
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Industry Pulse
HOT SEAT: Legacy Provider Strives to Be an IP Specialist Five years ago a dealer offered a DVR and some analog cameras and that was about it. Now you can offer a hybrid solution with analog and IP cameras. You can offer an NVR and all IP cameras. One customer with multiple sites might do different combinations of those at individual locations. Our focus is on helping dealers and integrators think about when to offer which solution.
As director of global product management for Tyco Security Products, Warren Brown is helping lead the company’s efforts to refocus its legacy analog brand to a provider of IP-based solutions. The recently launched Illustra camera series and victor, a video management solution (VMS), mark the first two major IP products for American Dynamics since it was rolled under the Tyco umbrella six years ago. Brown discusses challenges the company faced implementing an IP video strategy and other industry matters. What in particular was difficult about transitioning to IP products? Our advantage of having the analog infrastructure is we have a very good understanding of how customers want to use security video. But we have an interoperability challenge that a start-up IP video company does not have. Our customers expect that every IP solution we come out with will work with every analog device we’ve ever made. That is partly why it has taken us some time to get victor, VideoEdge [NVR] and now Illustra out to market because victor had to be successful not just talking to our NVR but also our Intellex DVR. You are taking a brand new client built on the latest technology and making sure it can talk to an Intellex that came off the production line eight to 10 years ago. It is expensive and time consuming to build those analog connections into our IP solution, but once we do it there is significant benefit for our end users in terms of giving them a smooth mi-
Warren Brown Director, Global Product Management Tyco Security Products
gration to IP. It has required buying a lot of infrastructure to have the QA [quality assurance] labs that we need to be able to test all of these things. It has required adding significant staffing, measured in hundreds of new engineers and technical folks to write the software and build the solutions. The bigger challenge was reorienting the business in every way from how we managed a project to the skill sets of the individuals involved in that project to the testing labs we have available. How much longer will analog sales remain strong? IP video will continue to be fast growing and will ultimately take over the market. But we have a healthy five to 10 years of a strong analog market, globally, still to come.
Two IP standards bodies (ONVIF and PSIA) are battling for dominance. Is that a good thing for the industry? It is a good thing. We are a board member of both groups. At the end of the day it encourages both groups to push harder and push faster to get standards defined and implemented. But we are certainly hearing some frustration in the field right now about the initial standards. Things don’t work as well as integrators expect them to or the standards don’t cover the full range of functionality that is expected. You can buy an ONVIF- or PSIA-compliant camera and hook it up to an NVR that supports [the respective standard] only to discover they can’t do patterns or presets or full PTZ control or whatever. My hope is that it doesn’t turn us off as an industry about standards in general. It is a growing pain. The correct focus of the standards groups has been on getting the core sharing of the video piece down and you expand out from there. It will take a few rounds to get there. FIND IT ON THE WEB F For more from our conversation, visit www. F securitysales.com/hotseat. se
. . . . . . . . . TRANSACTION Ticker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . … APX Alarm Security Solutions Inc. acquires Meter Solutions, an installing provider of smart meter technologies ... ADS Security purchases the accounts of Birmingham, Ala.-based Alarm One and Praetorian Systems Group from Systems Group LLC … Louisville, Ky.-based Advanced Security Koncepts and CARE Security & Monitoring agree to merge operations … Rockbridge Growth Equity acquires Connect America, a direct-to-consumer provider of personal emergency response systems (PERS).
16 securitysales.com • FEBRUARY 2011
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Industry Pulse DataBank
New Markers Gauge the Commercial Electronic Systems Industry The latest “Financial Analysis of the Industry” report by the National Systems Contractors Association (NSCA) tracks and benchmarks key financial ratios for a wide range of installing contractors in the commercial electronic systems industry. Among the 2010 findings, the biennial report details vertical market penetration and the primary method of sales.
Competitive Bid Vs. Negotiated/Direct Sales % of revenue from competitive bid projects
% of revenue from negotiated/direct sales
51%
2003
49%
2004
46%
54%
2005
46%
54%
40%
2006
60%
The ratio of negotiated/direct sales versus competitive bid sales continues to remain stable, with only small variations seen since 2006. Negotiated/direct sales account for the majority of revenue overall (58 percent), slightly below the level seen in the previous three surveys. Source: National Systems Contractors Association
37%
2007
63% 61%
39%
2008
42%
2010
58%
Primary Vertical Markets As in every study since 2003, the education and corporate markets lead all other vertical markets by a significant margin when respondents identify the one market that accounted for the largest share of their company’s revenue in the previous fiscal year. The education market is widening its lead. Since the 2008 study, education experienced a 7-point uptick, while corporate shed 5 percentage points. The sole exception is seen among the smallest companies, with one-third indicating that the religious market accounted for the greatest share of their revenue.
34% 24%
11%
10%
10%
9% 2%
Education
Corporate
Government Health Care
Other
Religious Manufacturing
Source: National Systems Contractors Association
◗SECURITY CIRCUIT Feb 15-16: Border Security Expo & Conference; Phoenix Convention Center; www.bordersecurityexpo.com; (301) 493-5500, ext. 3388.
Did You Know?
Feb 17-19: National Systems Contractors Association (NSCA) 13th Annual Business & Leadership Conference; San Diego; www.nsca.org/blc; (800) 446-6722. Feb. 21-23: World Game Protection Conference; The M Resort Spa Casino in Las Vegas; www.worldgameprotection.com; (702) 407-9900.
Aronson Security Group will host its ASG Security Summit & Expo March 8 in Seattle.
March 8: ASG Security Summit & Expo; Bell Harbor Int’l Conference Center in Seattle; www.aronsonsecurity.com/summit; (512) 358-4411.
March 9-12: Custom Electronic Design and Installation Association (CEDIA) Management Conference; Rancho Bernardo Inn in San Diego; www.cedia.net; (800) 669-5329.
18%
The average percentage of intrusion installations dealers counted on for their revenues in 2010. Find more SecuritySTATS at www.securitysales.com/securitystats
18 securitysales.com • FEBRUARY 2011
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Industry Pulse Company News ◗PEOPLE Allied Fire & Security appoints Rob Bayless as its new business development manager based in Portland, Ore., responsible for hiring, training and managing Bayless a sales team focused on increasing recurring revenue. He formerly served with Protection One, owned his own security company near Boise, Idaho, and most recently served with DMP. Memphis, Tenn.-based Frase Protection Inc. announces Gregory Polley, vice president of sales and marketing, has been elected vice president of the Western Region Polley of the Tennessee Electronic Security Association. Among his duties, Polley will schedule and develop content for regional quarterly meetings and participate in board of directors meetings in Nashville. Graybar, a distributor of electrical, communications and data networking products, appoints Kathleen Mazzarella to the newly created position of executive Mazzarella vice president and COO. With this updated title, she will continue in her role overseeing all sales and marketing. IP security products supplier Genetec appoints Bill Nash as COO, responsible for helping formulate policies and procedures needed to proactively manage Nash anticipated growth at the company. With many years of operational and management expertise, Nash, previously served as COO of Eicon Technology Corp.
ADS Security Buys Accounts in Birmingham (Ala.) ADS Security has purchased the collective accounts of Birmingham, Ala.based Alarm One and Praetorian Systems Group. The accounts were previously administered through the Systems Group. Terms of the deal were not disclosed. “These particular companies had installed, monitored and serviced what appeared to be very good solid systems and accounts. We are picking up good quality commercial, residential, burglar and fire alarm systems that we can provide to Birmingham customers through ADS services,” says ADS Vice President of Central Alabama Steven Hicks.
Infinova Goes Public With IPO on Chinese Stock Exchange Video surveillance systems provider Infinova has been taken public and is now listed on the Shenzhen stock exchange in China. The company says an initial public offering (IPO) raised $300 million, which it will use to grow both organically and through acquisitions, as well as enhance its R&D efforts. Infinova estimates its market value to be $1.2 billion. “We look forward to strengthening our global position as the integrators’ manufacturer,” says Infinova CEO Dr. Jeffrey Liu. “As a result of this IPO, Infinova can even better support our integrators and partners by delivering video systems that meet their customers’ business needs.”
Lenel, Security-Net Enhance Partnership to Offer More Products Lenel Systems Int’l, a division of UTC Fire & Security, and systems integrator network Security-Net have expanded their partnership to offer customers more extensive product offerings. The two companies will focus their resources and teaming efforts on providing security solutions fully supported by a global network of security professionals. As part of the agreement, Security-Net will now offer Lenel’s integrated security management systems, including OnGuard, Facility Commander Wnx and Picture Perfect.
IdentiSys Inc. Acquires Inland Business Products Secure identification and access control solutions provider IdentiSys has acquired Spokane, Wash.-based Inland Business Products Inc., a provider of photo identification, barcode, embossing and card issuance systems. Terms of the deal were not disclosed. Inland Business Products supplies solutions to the health-care, education, corporate, emergency management, and local and state government markets in Washington and Idaho. The acquisition expands IdentiSys’ footprint into the western states. The company also offers sales and onsite services in the Midwest to the Southeast.
PSA Unveils ‘Premier’ Vendor Partner Program PSA Security Network recently launched its new Premier Partner Program with an aim to enhance the value of the PSA relationship to its vendor partners and subsequently with its owners and customers. Premier status will include a variety of opportunities to foster brand visibility and increased sales volume. “Through this program our vendor partners will have the avenue to discuss expectations, how they compare with other vendors partners and ways they can improve their relationship with PSA,” says Bill Bozeman, CEO and president of PSA Security Network. “By strengthening our relationships with our vendor partners, we can enhance our value to integrators.”
20 securitysales.com • FEBRUARY 2011
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Convergence Channel
Storage Strategies, the Sequel The second installment in a three-part series on storing video data covers distributed storage as a design solution for large-scale projects. Specifically, learn the differences between network-attached storage and storage area networks.
W
hen most of us think about hard drives and storage, we think about the built-in storage we’re used to in our own PCs. As digital video security systems have grown larger, so have the requirements for video storage, far outstripping the ability of that storage to be contained in the video server itself. Digital, IP network-based systems have also evolved to the point that it is no longer desirable, or practical, in some cases to have the storage centrally located inside the recording
servers. “Distributed” is the new battle cry. There are many technologies available now that allow us to locate our storage arrays anywhere there is a connection to the network. In last month’s “Convergence Channel,” Part 1 of a three-part discussion on video storage served as a refresher course by covering some of the foundational principles of hard drives. This time, we’ll take a look at some of the things you need to know to build larger storage systems.
Network-Attached Storage
©iStockphoto.com/Jorgen Jacobsen
There are two main technologies in use today for large, networkbased storage systems: network-attached storage (NAS) and storage area networks (SAN). While similar, there are some important distinctions. NAS devices, which are the most common, are being used in even small home networks to store media files such as music, photos and movies. A NAS box is essentially a file server. Instead of a Windows or other operating system (OS) on a dedicated server with lots of storage inside of it, NAS is selfcontained, usually using a slimmed-down OS like Linux. Network-attached storage devices are essentially file It sits on the network and servers. Instead of a Windows or other operating system presents itself as a storage on a dedicated server with lots of storage inside of it, NAS is self-contained, usually using a slimmed-down OS share. To access that share, you would go to an address like Linux.
By Steve Payne steve@convergencewave.com
like \\NAS box\share name. The share can then be mapped to a drive letter for Windows-based devices. Inside the NAS box some of the principles we looked at in Part I of this series are being put to good use. Most mid- to high-end NAS devices use some level of RAID for either redundancy (critical to video security applications) or performance, most likely both. NAS boxes can be an effective entry level way to expand storage options for some systems, but keep in mind some of the cautions we discussed in last month’s column surrounding lowcost hardware. Just like the drives themselves, off-the-shelf, consumer-level NAS devices may not be able to handle the 100-percent write cycle for the same reasons consumer-grade drives can’t. And remember that in a multidisk array, heat is a big issue. So it is very important to ensure that your NAS device has sufficient cooling or at least venting capabilities to minimize drive failures. NAS recording boxes also connect to standard TCP/IP networks using file protocols like NFS or SMB, and can be located anywhere a network drop is available. This gives NAS a great deal of flexibility for small to midsize applications.
Storage Area Network Systems At the other end of the scale, SAN rules the roost. Most of you aren’t going to need to set up your own SAN, but it’s important to understand what
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©iStockphoto.com/Maxim Tupikov
As opposed to a NAS device, a storage area network (SAN) is an entire network segment dedicated to storage arrays. A SAN works at the drive block level and actually looks like a local drive to your computer.
been adapted for use in SANs. In spite of the name (and European spelling), FibreChannel can actually be run over twisted pair copper wire or fiber-optic cable. Some implementations like FibreChannel over Ethernet can be run on 10Gb Ethernet networks. One of the reasons FibreChannel has been kept at the high end of the market is cost. It requires special FibreChannel-capable switching hardware and interface cards for the servers. Both SANs and NAS devices have their applications for video security. Some systems manufacturers are starting to include support for iSCSI and FibreChannel in their enterpriselevel products. At the lower end, support for RAID NAS devices is also becoming commonplace, built right into the product’s operating system.
Applying the Right Solution it is and some foundational concepts, as you may run into it in larger, campus-sized projects. As opposed to a NAS device, a SAN is an entire network segment dedicated to storage arrays. Without getting into all the complexities of SAN, and there are many, let’s look at some of the key differences between a SAN and NAS. A NAS box, as mentioned above, works like any other external hard drive setup, using standard file system protocols, and is in fact file based. A SAN, by comparison, works at the drive block level and actually looks like a local drive to your computer. While the storage volume in a NAS can serve up files directly to multiple users, each logical volume (identified by a Logical Unit Number or LUN) in a SAN can be dedicated to an individual server. It’s not really designed for direct client or user access. It’s used more as a way to expand the storage on a server. One of the greatest benefits of a SAN is that since the volumes are logical, they can be moved and/or allocated as necessary. For instance, if
you have multiple NVRs feeding into a SAN, and one NVR has more activity or higher image resolution than the others, you can allot more storage to the busier NVRs than the others — all via software and all on the fly. While a NAS device sits directly on the network via standard Ethernet switches, a SAN has to be behind specially designed switches utilizing high-speed connectivity technologies such as iSCSI or FibreChannel. This also requires the use of specialized cards in the servers. iSCSI is an Ethernet-based technology that allows very fast file transfers. It can utilize the standard network infrastructure in most facilities. iSCSI takes standard SCSI commands and wraps them in Ethernet IP data, allowing it to use those standard networks. It allows storage management and transfer over long distances, basically anywhere the network can reach. FibreChannel is a high speed (gigabit, in fact) transmission protocol. It was originally used for communication between supercomputers but has since
As I mentioned back at the beginning of the last section, you may not run into a need to build a SAN yourself, although if you deal primarily in large, enterprise-class systems you might be called on to do just that. More than likely, your contact with SAN systems is going to come in the form of a customer like a hospital or college that already has a SAN in place, and wants to utilize it to store your video. If this is the case, then you may need to look to the manufacturer of your particular system to determine its compatibility with either NAS or SAN devices. In many cases, the NAS box will be relatively easy to implement. Using technologies such as iSCSI or FibreChannel with video security systems could be more of a challenge. In the final entry in this series, we will look at Flash recording technology and see where the storage industry just might be taking us. ■ MCSE- and CCNA-certified Steve Payne has more than 15 years of industry experience and heads Convergence Consulting, an IP and security solutions consulting firm. Be sure to also read his Integrated Thoughts blog at securitysales.com/blog.
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Tech Talk
What IP Signals for Your Business Security communications are quickly transitioning to IP-based technologies. An expert details the changes and explains what traditional security dealers must do to keep up.
T
he alarm and security industry is rapidly and inevitably migrating from POTS-based (plain old telephone service) signal and communications transmission to IP and wireless technologies. Security providers must adapt to these changing times in order to best serve their customers and remain competitively relevant in the new era of security communications. Recently, I had a chance to discuss the status of security industry IP communications with Los Angeles-based Steve Nutt, owner and founder of IP Alarms (www.ipalarms.net). Nutt, who started out some decades ago as a security technician and has extensive worldwide IP trade experience, lends insight and guidance on transitioning to these emerging communications channels. Cisco’s (LinkSys) WRP400 wireless-G broadband router is an example of versatile network equipment that can provide a dual path alarm and IP camera monitoring worldwide.
Courtesy Cisco Systems
By Bob Dolph bdolph.ssi@gmail.com
Recently, I noticed you commenting, ‘the POTS & 2G clocks are ticking.’ What do you see unfolding here? Steve Nutt: Money is tight and alarm dealers are scared to contact their subscribers for fear of them canceling their accounts. The few that are proactive regarding the pending sunsets are choosing the cellular option for upgrading from POTS. This is because IP is viewed as more complex and there are no education programs available. Even if the whole industry became proactive today, we do not have the manpower to convert 25-30 million systems and beat the sunsets. This situation has created an opening for tech companies from outside the industry that have no subscribers to lose and no fear of IP.
ing on low polling supervision intervals even on residential accounts and this will inevitably cause problems. I agree that there are some badly designed solutions out there from traditional security industry manufacturers that have little understanding of IP. Having IP communicators out there with the ability to only communicate with a single IP address does not help.
You also commented, ‘Other than providers of 2G cellular solutions, the whole industry knows that the vast majority of monitored systems today will likely end up signaling over IP.’ What about the lack of reliability in IP communications?
What do you suggest as a good precaution now for improving IP communications? Nutt: I believe the security industry should form a group headed by a person highly respected and trusted by the central station community. The group should seek to obtain as much information as possible on the various solutions and create a list of best practices. Failing that, each central station should conduct its own, thorough investigation.
Nutt: There is no lack of reliability in IP communications, only a misunderstanding of how best to work around the occasional, short network blip. The industry is insist-
Will IP communications redundancy be an effective cure? Nutt: It will help, but once again there is no guidance from a trustworthy source and the industry is fumbling around in the dark. Redundancy is definitely not taken seriously enough by central stations and they tend to shy away from the subject.
Do you have any comments on DDos strategies and how much we should be concerned? Nutt: I cannot comment on DDoS [distributed denial of service] strategies
24 securitysales.com • FEBRUARY 2011
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Tech Talk
as obscurity forms a very important part of our defense. Central stations should be concerned at least enough to do some research and try to understand how DDoS works and what consequences it could have on their business should it happen to them. You also commented, ‘The majority of installation techs do not know an IP address from their elbow.’ In what ar-
ets cannot get through. I feel the industry has been let down by UL on this and steps should be taken to remedy the situation as soon as possible. How do you see the U.S. IP security market progression compared to Australia and Europe? Nutt: Europe is by far the most advanced market for IP monitoring as it is driven by the police and insurance
There is no lack of reliability in IP communications, only a misunderstanding of how best to work around the occasional, short network blip. Steve Nutt, Founder IP Alarms
eas do you find techs most deficient? Nutt: Installation techs tend not to have a good understanding of IP communicators and how they work. IT staff from central stations are also sometimes not really proficient enough to be making decisions on which IP solutions they should be running. There are some very IP-savvy people in our industry, but I think that overall we are not very well prepared to handle mass migration from POTS to IP. You commented that we should keep a close eye on the WikiLeaks incident. How does this scenario affect present IP monitoring strategies? Nutt: The WikiLeaks incident has demonstrated how even the largest corporations are vulnerable to attack, and how difficult and expensive it can be to defend against such attacks. UL states that IP receivers must use fixed IP addresses and not domain names. This makes life so much easier for an attacker who wants to prevent alarm signals from reaching an IP receiver. All an attacker needs to do is flood the IP address with packets so the receiver becomes overwhelmed and genuine alarm pack-
companies. EU standards were available at a very early stage, so everybody knows where they stand. It is not like the U.S. where there is a free and open market. If a consumer wants insurance, they require a police response. There is no real IP monitoring market in Australia yet. There has been a healthy high-end market for cellular GPRS-based solutions. The government has just announced rollout of a National Broadband Network that will involve ripping out every landline in the country. The North American security industry was just getting interested in IP communications before the recession hit. The interest went away for a full 18 months before the early adopters slowly started to appear after the announcement of the POTS and 2G sunsets in early 2010. Please provide any other comments or any other IP strategies that you believe are relevant to today’s tech coming up to speed on IP connectivity? Nutt: Learn as much as possible about how the Internet works and how IP devices communicate with a
server. Consider what features you may lose when you migrate from POTS to IP and search out solutions that support your most important requirements. There are now cloud-based alarm platforms available that receive alarm signals over IP from a wide range of panels and forward the signals directly into the automation software at the central station. There will be strong resistance to this strategy at first, but as central stations realize how difficult it can be to maintain IP receivers and provide the associated redundancy, it should eventually become the norm. In finalizing, what do you see as the major IP monitoring issues facing alarm dealers, central stations and vendors? It appears that influencing general marketing forces are already way ahead of the established small dealer. Nutt: The major issue for both alarm dealers and central stations is that the majority of IP solutions are vendor specific. For example, DSC IP receivers only support DSC alarm panels; DMP receivers only support DMP panels and so on. The problem for the alarm dealers is that if they choose to use proprietary solutions, they have to learn to work with a new one for every make of panel they have installed. The problem for central stations is they have to purchase redundant IP receivers for each and every solution they want to support. Obviously, the way to overcome this is to use a single universal solution that supports every make of alarm panel. ■ Bob Dolph has served in various technical management and advisory positions in the security industry for 30+ years. To share tips and installation questions, E-mail Bob at bdolph.ssi@gmail.com. Check out his Tech Shack blog at www.securitysales.com/blog.
FIND IT ON THE WEB F For more from Steve Nutt concerning IP F communications, visit www.securitysales. co com/blog.
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Fire Side Chat
Entrusting Networks With Life Safety Though not as quick to migrate to IT network signal transmission as other systems installed by security contractors, fire/life safety is nevertheless following suit. Find out the latest technology and code developments in this emerging area.
N
etwork technology is quickly consuming every aspect of life. From the television we watch, the news we read, to the computers we use each day, network architecture and Internet protocol (IP) addressability is fast becoming the preferred method of communication across the land. According to Section 3.3.156 of NFPA 72, 2010 Edition, Network Architecture is defined as, “The physical and logical design of a network, and the inherent ability of the design to carry data from one point to another.” This month, we’ll take a look at how network technology is being put to good use in life safety. Possible areas of deployment include signal communications between fire alarm systems and central monitoring stations. We’ll also touch on the dissemination of signals along with how network technology promises to keep mass notification networks up to date. This includes the mass notification systems (MNS) fire technicians install and service.
Technology Creates Controversy Traditional network technology may not be suitable for life-safety systems for a variety of reasons. Nevertheless fire alarm control panel manufacturers have incorporated many of the ideas and precepts used in traditional networks. The result is a more
dependable, easy-to-install fire alarm system compared to those that utilize conventional technologies. A good example of this is the E3 Series fire alarm system manufactured by Gamewell FCI, a Honeywell company. The E3 Series system uses a unique, 625kbps ARCnet broadband communication network as a backbone between alarm panels, controllers, I/O modules, relay boards, intelligent power supplies and smart expansion panels.
By Al Colombo abc@alcolombo.us
rying device data as well as voice information for emergency voice/alarm communications (EVAC) systems. Best of all, instead of the typical 300- to 350-foot limitation imposed by traditional network technology, ARCnet is capable of supporting up to 3,000 feet of metallic wire between nodes. This arrangement makes it possible to eliminate miles of copper in a large building, thus saving time and money in labor and materials.
Campuses Often on Cutting Edge One of the leading markets facilitating fire/life-safety communications across IT networks has been college campuses. For example, a few years ago a college local to me in the Akron, Ohio, area brought in an electrical contractor to install ©iSto ckpho to.com Category-5e cable between a /Pete r Aus tin series of network racks and the fire alarm panels in key buildings on campus. A second firm was also hired to install communication equipment designed to interpret digital data from alarm panel DACTs, thus converting it to IPNetwork technology, as detailed under based network communications, suitNFPA 72, 2010 Edition, carries the spark able for transmission over traditional that powers many of today’s robust fire/ wide area network (WAN) technology. life-safety systems. The idea was, and still is, to elimThis broadband network is capable inate copper telephone lines — also of utilizing metallic cable (two conducreferred to as Plain Old Telephone tors twisted) as well as fiber-optic caSystem (POTS). Instead of running ble, or a combination of both. A single DACT-based signaling through POTS, set of twisted wires is capable of carthis college had it in mind to send the
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Code Condones Network Use In years past, NFPA 72 supported the use of the Public Switched Telephone Network (PSTN) as a primary means of signal transport. All sorts of technologies sprung up in the meantime, most of which were supported by the 2007 Edition. Today, however, the 2010 Edition fully supports the use of network technology, so long as it meets an entirely new set of rules regarding supervision. To put it briefly, it appears that POTS may be set to go to pasture. “Public switched telephone network facilities shall be used only as an alternate method of transmitting signals” (Section 26.6.2.6.1.2, NFPA 72, 2010). Given the fact that fire alarm technology has moved into the network realm itself, I think it’s safe to say that the committee’s decision regarding PSTN is quite in line with what all of us know must come. Here are some additional code references:
According to Section 26.6.3.1.4, Communications Integrity: “Provision shall be made to monitor the integrity of the transmission technology and its communications path,” which has always been the aim of NFPA 72. All channels of communication must be supervised. Section 26.6.3.1.4.1, Single Communications Technology, says: “Where only one communications technology is used, any failure of the communications path shall be annunciated at the supervising station within 5 minutes of the failure.” And third, Section 26.6.3.1.4.2, Multiple Communications Technologies, reads: “Where two or more different technologies are used, the following requirements shall be met: (1) Provision shall be made to monitor the integrity of each communications path. (2) Failure of any communications path shall be annunciated at the supervising station and at the protected premises within not more than 24 hours of the failure. Exception: Where technologies used are described elsewhere in this Code, monitoring for integrity shall be permitted to comply with those requirements.”
Mass Notification and Integration Network architecture plays a major role in the MNS fire alarm companies install. January 2010’s “Fire Side Chat” column discussed MNS and how it can be integrated into an EVAC system (www.securitysales.com/Channel/Fire-Life-Safety/Articles/2010/01/
◗ Understanding LAN, WAN and BGAN The two most common networks in use today are local area network (LAN) and wide area network (WAN). The majority of us are most familiar with the LAN, such as the network in an office. The WAN can cover multiple buildings in a single geographic area, an entire city, state, country or even the entire world. A third type of network, although not as well known, is
called broadband global area network (BGAN). This type of network utilizes a fleet of satellites to transport bidirectional data. Popular services over BGAN include telephony and remote Internet access. “The terminals are normally used to connect a laptop computer to broadband Internet in remote locations, although as long as line-ofsight to the satellite exists,
the terminal can be used anywhere” (http://en.wikipedia. org/wiki/Broadband_Global_ Area_Network). Network service providers, such as ISPs, are often employed to link individual LANs together, which essentially forms a WAN. Network architecture can include metallic, fiber, or wireless, such as satellite communications, as with the aforementioned BGAN.
©iStockphoto.com/Spectral-Design
same data in a suitable IP format to a remote monitoring facility hundreds of miles away, and this they did. There was a day not so long ago when no one in their right mind would have thought of using a traditional WAN, such as the Internet, to send critical life-safety signals from fire alarm panel to a central monitoring or supervising station. But the fact is, today, the NFPA 72, 2010 Edition appears to support this method of signaling.
Not so long ago no one would have thought of using the Internet to send critical life-safety signals from fire alarm panel to a monitoring station. But today NFPA 72 supports it.
Integrating-Mass-Notification-WithEVAC.aspx). In general, if we stand back for a moment and take a look at the mass notification mission, we’ll see it not only includes the audio/visual components the life-safety market is required by code to deal with, but also any and every means of communication. The object is to place timely, critical information in the hands of those who can use it the most and to do that through every possible electronic means available. The new NFPA 72, 2010 Edition, offers significant changes on a variety of fronts, one of them being MNS technology. Herein it speaks of an emergency alert system (EAS) Distributed Recipient Mass Notification System (DRMNS), which includes telephonic, facsimile, cellular, Internet, E-mail, instant messaging, SMS texting, textual alerting communications systems and more. In a subsequent column, we’ll take a closer look at DRMNS requirements, why fire alarm technicians should be aware of them and how EAS plays an integral role in the operation of MNS in a time of crisis. For now, to learn more about DRMNS and how MNS you sell and install today will one day depend on EAS for timely command data, refer to Sections 3.3.67, 3.3.79, and 24.4.4 of the 2010 Edition of NFPA 72, National Fire Alarm and Signaling Code. ■ Al Colombo is an award-winning writer who has covered electronic security and life safety since 1986. Visit his Web site at www.alcolombo.info, and check out his Security Sense blog at www.securitysales.com/blog.
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Monitoring Matters
Beware State Licensing Laws
A
ll central station alarm monitors should be trained comprehensively and subject to background checks that include a run of fingerprints through the National Crime Information Center (NCIC). The issue at hand is that our industry bogs down with redundant costs when central stations must cut through multiple layers of bureaucracy in their home state, as well as others in which they do business. For example, drafted legislation in New York titled “Article 6-E Business of Alarm Monitoring” creates redundancies that limit the market for service providers. This legislation — touted as a potential model ordinance — was developed with good intentions by the New York Burglar and Fire Alarm Association (NYBFAA) and Long Island Alarm Association (LIAA). While it reflects many of the necessary broad strokes on paper, nevertheless it needs some work. Following are three provisions included in the legislation, along with explanations as to why each is objectionable. All alarm monitors will be fingerprinted and undergo a background check using a New York vendor. If a company already fingerprints all its employees and runs NCIC background checks at regular intervals in their home state, this is a needless redundant cost. Fingerprints don’t change and the NCIC gathers information from all 50 states, in addition to international law enforcement. This verbiage should be changed to, “If the central station does not fingerprint its employees and does not submit for background checks through NCIC then … ”
Each central station must designate a manager to sit for a state examination. This type of provision is typically used to keep competition out of the market. UL, FM Global and the free market should be the determining factor. Here’s why: Alarm dealers vote with their dollars. If a central station is not providing acceptable service, dealers move their subscribers. So the verbiage should be changed to, “If the central station is not audited by a Nationally Recognized Testing Laboratory (NRTL) then … ” All operators shall be required to take within 30 days a monitoring station operator course offered by the Security Industry Association [SIA], Association of Public-Safety Communications Officials Int’l [APCO], or a central station training course offered or approved by the Central Station Alarm Association [CSAA], or a similar course approved by the Secretary of State. First off, SIA no longer provides monitor training and CSAA training is a minimum cost of $216 per staff member for the two courses. Generally, CSAA (and APCO) training is good, but for companies that have been operating for decades with an extensive internally developed curriculum, the costs are redundant. They could be considered punitive as well.
Setting Goals, Getting Involved In its current form, the New York legislation does more for state and association revenue generation than public safety. That’s why the alarm industry needs a national standard, which will take several years to develop and implement. Nevertheless, we need to identi-
By Kevin Lehan k.lehan@emergency24.com
fy the essential building blocks. These should include: • Require NCIC background checks and fingerprinting at regular intervals, but only in one state per employee • NRTL-audited companies must receive relief. There are too many redundant processes and costs for companies that have proven to meet the highest standards • Create safeguards to protect intellectual property rights of companies that submit their training for certification. Without a common standard, there are too many duplicate costs for NRTLaudited central stations. This eliminates potential competitors that could apply market pressure to raise the standards of service while keeping prices in check. Without a free and open market, there is less incentive to strive for progress, leaving our industry in a stagnant state. Everyone associated with the industry must become involved in the various associations to develop a national standard that safeguards the well being of end users; encourages technological advancement; and does not place redundant financial burden on NRTL-audited companies. Regardless of the size of your organization or in which states it is based, alarm dealers must become active in the public safety process — both legislative and association matters — and exercise control over our industry. ■ Kevin Lehan is manager of public relations for Des Plaines, Ill.-based Emergency 24 Inc.
30 www.securitysales.com • FEBRUARY 2011
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❯❯The Business of Security INDUSTRY FINANCE
SECURITY INVESTOR
Bulls Trample
©iStockphoto.com/Joshua Hodge Photography
Publicly traded security companies continued positive performance for the second straight year, even outperforming major U.S. market indexes. Robust M&A activity spurred growth and consolidation in 2010, with more of the same projected in the coming year.
R
By Walter Bailey
iding a wave of momentum from the previous year, security sector stocks continued to perform well throughout 2010. Although the security industry learned it wasn’t immune to the global recessionary tumult, security subsector indices rose on average 14 percent year over year. That was good enough to beat out the Dow Jones Industrial Average (+9 percent) and S&P 500 (+11 percent), while matching NASDAQ’s 14-percent gain. When segregated by size of equity capitalization — large cap, mid cap, small cap and micro cap — security sector stocks delivered returns consistent with the aggregate overall performance except for micro caps. Here, the
Russell 3000 benchmark soundly beat the respective security index by more than 11 percent. Small caps showed the highest yearover-year price appreciation by gaining 22 percent versus large caps at 15 percent, followed by mid caps at 11 percent and micro caps at 1 percent. This past year the security industry also experienced a good deal of M&A activity with a number of significant deals acting as catalysts for consolidation, reshaping industry subsectors and redefining competition. SECURITY SALES & INTEGRATION’s annual industry financial analysis and stocks report examines the financial performance of the security industry. It offers perspective on what industry
professionals may generally expect to see in the marketplace during 2011.
Industry Segments Up Close New for this year’s report are revised subsector peer groupings to keep pace with the changing landscape of the industry. The “Security Sector Performance Overview” on page 35 provides a brief look at the individual industry sectors, plus details about how some industry players fared during 2010. Notably, the Security and Defense Integrator subsector turned in the weakest performance, on average losing 7 percent of equity value. The winners in rank order were Alarm Equipment and Physical Access (+37 percent); Asset Tracking and In-
32 securitysales.com • FEBRUARY 2011
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the Bears telligent Traffic (+32 percent); Large Cap and Defense Primes (+16 percent); Safety and Protection (+13 percent); Corrections and Guarding (+9 percent); C3ISR [Command, Control, Communication, Intelligence, Surveillance and Reconnaissance] and Threat Detection (+7 percent); and Credentialing and ID Solutions (+5 percent). Aggregate subsector equity values yielded modest variations in subsector performance, but generally tracked the index measures. Sector equity value increases were driven by aggregate sector 5-percent year-over-year revenues gains, while respective profits (as measured by earnings before interest, depreciation, amortization and taxes or EBITDA) rose a collective 4 percent. Also contributing to the rising values, were increases in multiples, up approximately an average of 10 percent for revenue and 6 percent for EBITDA. Sector stock prices closed the year with aggregate industry stocks trading at approximately 85 percent of component companies’ 52-week highs versus 2009’s approximately 80-percent finish. The C3ISR/Threat Detection subsector closed highest at approximately 90 percent and the Alarm Equipment/Physical Access subsector finished lowest at approximately 80 percent of their respective subsector 52-week high price marks. In measuring the volatility of those subsector prices, Alarm Equipment/ Physical Access and Asset Tracking/Intelligent Traffic experienced the greatest volatility (as measured by deviations in the percent of 52-week high at the year-end close). Corrections/Guarding and C3ISR/ Threat Detection experienced the lowest volatility. These results were somewhat predictable given that 80 percent of the Alarm Equipment/Physical Ac-
cess companies, and 83 percent of Asset Tracking/Intelligent Traffic companies, were micro- and small-cap businesses. Small- and micro-cap stocks tend to have greater price volatility than their larger peers. Additionally, leverage factors contributed to equity value gains, as many subsectors and companies continued to pare debt levels.
Reviewing 2010 M&A Activity As in recent years, mergers and acquisitions continued to be a key form of liquidity for owners seeking to convert assets into cash. In 2010, numerous key transactions were consummated, some big and some not. Stanley continued its march to consolidate security products and services with three service company acquisitions as well as the Black & Decker merger. The markets reacted favorably to Kratos Defense & Security Solutions’ acquisition of Henry Bros. Electronics
(HBE) and other buys in the integrator and security services/products markets, despite increasing its debt outstanding by 275 percent. In contrast, the market seemingly did not support FLIR’s $225 million acquisition of ICx, perhaps due to the lack of a cohesive product strategy and mix qualities at ICx. Defense company Moog, continued its string of small video asset acquisitions, further migrating into the world of security. Private equity was very active in 2010, with such notable buyers transacting as Veritas, Carlyle Group, Francisco Partners, GTCR Golder Rauner, Cerberus, Warburg Pincus and Sun Capital. For example, almost all remaining public pureplays in the alarm monitoring space — Protection One, Monitronics, Protect America, Central Security, Broadview and Sonitrol franchises — ended the year changing ownership. Veritas was on the sell and buy sides, exiting integrator/services provider DynCorp (sold to financial player Cerberus for $1.5 billion) and re-entering the C3ISR/ Threat Detection market via its $500 million acquisition of PerkinElmer’s detection assets. Many smaller financial
◗ 2010 vs. 2009 Security Sector Performance December 31, 2010 Enterprise Value/ Revenues EBITDA Alarm Equipment/Physical Access
1.1x
7.4x
December 31, 2009 Enterprise Value/ Revenues EBITDA 1.1x
9.4x
Variance (%) Enterprise Value/ Revenues EBITDA 0%
-21%
Asset Tracking/Intelligent Traffic
1.8x
11.3x
1.6x
9.5x
13%
19%
C3ISR/Threat Detection
1.9x
10.8x
1.7x
10.5x
12%
3%
Corrections/Guarding
1.1x
8.5x
1.1x
7.8x
0%
9%
Credentialing/ID Solutions
2.0x
14.4x
1.7x
11.3x
18%
27%
Large Cap/Defense Primes
1.2x
9.2x
1.0x
9.2x
20%
0%
Safety/Protection
0.8x
9.0x
0.7x
8.4x
14%
7%
Security/Defense Integrators
0.7x
7.1x
0.7x
7.3x
0%
-3%
Overall Average
1.3x
9.7x
1.2x
9.2x
10%
6%
Overall Median
1.2x
9.1x
1.1x
9.3x
5%
-2%
The industry’s best performing sectors in 2010 included Alarm Equipment/Physical Access, Asset Tracking/Intelligent Traffic and Large Cap/Defense Primes. Sector stocks ended 2010 with the collective industry trading at approximately 85 percent of component companies’ 52-week highs versus the previous year’s approximately 80-percent finish. Source: CapitalIQ
securitysales.com • FEBRUARY 2011 33
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ANNUAL SECURITY INVESTING ANALYSIS
buyers are also pursuing sector deals and making inroads to consolidate some of the more fractured subsectors.
Technology Trends to Consider There will be several burgeoning technological trends to keep watch on in 2011. Among them Internet-based (or “cloud”) computing, converged services, biometric autonomous recognition and multifactor threat detection. The proliferation of cloud computing is a blessing and a curse, allowing massively increased computing, hosting and communications options for security and other uses. At the same time it will also create increased risk exposures. Consider: Ponemon Institute, a research firm that focuses on data security and privacy, surveyed IT departments and found more than half the respondents felt that using the cloud for even nonfinancial business information was too risky. Secure use of the cloud reduces computing costs and greatly enhances func-
tionality. Rather than shy away from the inevitable, there will be companies that continue to successfully embrace cloud computing and build application and service models around its use. Converged services, like those developed for green or smart environments, are rapidly taking hold as an attractive service model for customers. Integrating control of lighting, security, access control, energy, communications and/ or other functions is a huge opportunity aggressively being pursued by legacy heavyweights such as United Technologies Corp. (UTC), Johnson Controls, Schneider Electric and Siemens. Newewcomers like Cisco, RightCrowd and FacilityONE are also making their presence felt. Whether the project is in a new Leadership in Energy and Environmental Design (LEED) Platinum development or retrofitting an existing plant, converged services models accelerate customer return on investment (ROI) and
generate long-term cost savings. Winners will determine ways to profitably bundle services and products, in nonproprietary forms, to deliver customers a best-of-breed menu that can be up- or down-featured. Smaller players with best-in-class products or services can play here via partnerships, alliances or joint ventures. Autonomous recognition for biometrics is just gaining traction as it relates to market penetration. Multiple smaller players have attempted platforms, but larger integrators and tech players will drive biometrics’ rapid and ubiquitous market penetration. For instance, research firm Freedonia Group forecasts biometrics-enabled access control to rise from today’s 22 percent market penetration to more than 50 percent market penetration by 2019. Multifactor threat detection is here. The combination of smart sensors, smart video and smart detection form factors crossing multiple technologies
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◗ Security Sector Performance Review ALARM EQUIPMENT/ PHYSICAL ACCESS — Gunnebo achieved a 207-percent increase in price and equity value by delivering almost 4x profits growth. Kaba likewise performed well, almost doubling its stock price. These mid-cap players showed best in the subsector. China Security was a surprise laggard despite upper-teens margins performance. ASSET TRACKING/ INTELLIGENT TRAFFIC — Strong price performance was again associated with margins where Kapsch more than doubled price on 20-percent margins (up from 12 percent). Redflex and Image Sensing both did well showing sustainability of 20-percent-plus margins. Nanging Sample delivered 250-percent appreciation on continued sales and profits growth.
C3ISR/THREAT DETECTION — Leading margins (32 percent) did not help FLIR, which lost value. Instead, Applied Signal Technology was the winner delivering almost 2x price appreciation (largely a result of its pending takeover offer by Raytheon). Via M&A, Kratos Defense & Security Solutions drove a 47-percent increase in EBITDA multiple, while Qinetiq’s strategic challenges cost the company 23 percent of its equity value. CORRECTIONS/GUARDING — M&A also impacted this subsector as Geo acquired Cornell, but health care-centric Rural Metro was the big winner, posting gains of 243 percent on strong contracts, M&A and a successful refinancing. Many subsector micro-cap players are showing eroding share, profits and liquidity but the group did deliver the second lowest price volatility this year.
CREDENTIALING/ ID SOLUTIONS — L1 topped the subsector on its pending takeover by Safran. NICE, AuthenTec and Precise followed with 15-percent stock gains. With L1 going to Safran, much of the subsector’s intellectual property is in the hands of private companies or large players/consolidators (including domestic and international defense primes).
SAFETY/PROTECTION — Bodycote delivered 70-percent appreciation, and Ceradyne showed well on the back of strong forecasts with a 64-percent increase. Oshkosh, despite 55-percent growth in revenues and a 131-percent increase in EBITDA, was punished with the subsector’s lowest multiples. In trouble is Point Blank, a microcap, which filed for bankruptcy.
LARGE CAP/DEFENSE PRIMES — Stanley Black & Decker wins it all with a 268-percent increase in equity value resulting largely from its acquisitions, which drove leading gains in revenues and profits. Warning lights went off for Finmeccanica as margins dipped to 1.5 percent and its equity lost 29 percent. Similar pain was felt by Thales where margins are weak.
SECURITY/DEFENSE INTEGRATORS — Diebold upped its stock’s value by 13 percent on the back of enhancing profit margins, while Versar increased equity value 14 percent by achieving strong contracts growth. That said, the value of leadership was reflected in EBITDA multiples, where Niscayah topped the group at 9.9x and in contrast, Unisys had 2.6x.
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ANNUAL SECURITY INVESTING ANALYSIS
Security Industry Index Vs. U.S. Equity Indexes 120
115
110
105
100
95
90
85 Jan-10
Feb-10
Mar-10
Apr-10
May-10
Security
Jun-10
NASDAQ
Jul-10
Aug-10
Sep-10
Dow Jones
Oct-10
S&P 500
Nov-10
Dec-10
Source: CapitalIQ
The above 2010 indexed price performance illustrates how the security industry followed a similar up and down path as major U.S. market indexes. Security sector stocks continued positive performance following gains in 2009, outpacing the Dow Jones Industrial Average in 2010 by 5 percentage points.
is growing in appeal and affordability. Layering detection methods (search, video, sensor, portal, etc.) with more robust affordable technologies delivers a truly secure environment. Integrating these diverse products and hierarchies should mean good business for integrators. Technology providers addressing standoff, radiation and iris platforms should gain velocity during the coming year. Homeland Security Research Corp. recently noted that homeland security spending for standoff explosives detection systems is forecast to grow by more than 40 percent by 2014. The ultimate question surrounding the sector is who will pay for the products/services, new technologies and requisite integrations? The federal and state budgets are stretched to the breaking point, and tax revenues cannot continue to support ever-rising spending levels. Still, stimulus programs, mandatory infrastructure expenditures and increased security regulations and compliance monitoring suggest the money will come. Either way, serving the large government market is the playground
of titans. Smaller companies generally fare better focusing on commercial market customers or acting as subcontractors to primes when dealing with government contracts.
Market Niches to Focus On Specific end markets viewed as attractive for growing security revenues during the coming year are health care, energy, mass transit and shipping/logistics. In every case, there are compelling reasons both the public and private sectors will sustain continued and/or increased security spending. In the case of health care, regulation and stimulus monies continue to support security sector investment. Health-care providers and related suppliers showed increases in their budgets during the past couple of years and will likely continue to do so. The energy sector — whether it is the offshore driller, solar farm, distribution utility or public grid — will likely continue to spend on security. Many players in the energy sector can well afford to pay for the investment and cannot afford lackadaisical attention to
risks. The previous year saw increased spending by this sector; there are abundant commercial and compliance reasons that investment will continue to be forthcoming. Mass transit systems are also spending, largely due to decades of underinvestment. While many high profile deployments of video analytics and chem/ bio sensing have been targeted at mass transit, basic security spending has often been less robust. Fare collection, platform monitoring, access control, bus video, critical communications, intelligent traffic, emergency/priority routing and other applications are ready for upgrade, and major cities are contracting for these projects. Shipping/logistics should also spend as asset tracking and product security are key initiatives. Given customers’ everincreasing need to account for goods in transit, end users and industry providers should continue to underwrite spending for upgrades, deployment of new technologies and increased services. ■ Walter Bailey is Senior Managing Director of Focus Capital Group Inc., a boutique investment bank with offices in New York and Minneapolis. He can be contacted at (646) 525-4835 or wbailey@focuscgi.com.
36 securitysales.com • FEBRUARY 2011
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❯❯The Business of Security MERGERS & ACQUISITIONS
Savvy Execs Shop
Strategic Buys
for
©iStock photo.co m/David Hilcher
Economic turbulence has caused many installing security companies to take a conservative approach to M&A. A select few, however, remain active in pursuing strategic growth initiatives. Four executives explain why their businesses continue to acquire.
A
By Rodney Bosch
cquisition is a well-established means for growing a company. Whether it’s buying customer accounts to increase recurring revenue, enter a new channel, enhance a services portfolio, expand a geographic footprint or gain new technical expertise, acquisitive tactics help fulfill strategic goals. The electronic security industry is rich with installing contractors that have executed fine-tuned strategic growth plans to become leaders in their respective markets. In recent years, however, recessionary gloom has forced many companies to retreat from pursuing their M&A objectives; but not all. Select security providers are bucking the conservative business approach and are instead keeping their collective foot on the acquisition gas pedal. How are they doing it? SSI tapped the guile of four executives from leading regional security providers to explain why they remain resolutely focused on fulfilling
their external growth objectives. The participants include Mel Mahler, chairman of the board and CEO of Nashville, Tenn.-based ADS Security; Joe Nuccio, president and CEO of Beltsville, Md.-based ASG Security; Pam Petrow, president and CEO of Pittsburgh-based Vector Security; and Brad Tolliver, vice president and general manger, electronic security, of Davenport, Iowa-based Per Mar Security Services. Find out why these organizations continue to invest in expansion while others shy away in the face of a hostile economic environment. And if you’re a company owner considering an exit strategy, don’t miss these executives’ keen advice on how to best position your business as an attractive buy. Did the acquisitions your company made during the recessionary period help offset underperforming markets you operate in?
38 securitysales.com • FEBRUARY 2011
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What alarm dealers in the know, know
www.securitysales.com/freeinfo/12199
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EXECS DISCUSS ACQUISITIVE WAYS
Mel Mahler: We stepped up our acquisition activity but we didn’t actually close more than we normally do. We had a lot more prospects, but we walked away from a lot of deals. If you look at the report I get every week — detailing the prospective acquisitions, both full company and fold-ins — that list got bigger and bigger over the last two to three years. We would go in and learn that
itive position of being able to continue our strategy of integrating high quality companies with talented people. Brad Tolliver: We used to do more larger-scale projects, more integrated-style projects when the building industry was strong and booming. About twoand-a-half years ago we refocused back on RMR growth. As a result of that our RMR growth has been strong and re-
You have to really make the people in [the acquired] operation feel good and successful. Otherwise you just spent the money and you are not going to get the desired results. Mel Mahler, Chairman of the Board and CEO ADS Security
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they just weren’t good enough. There isn’t anything worse than buying a bad company. We would rather pay a good multiple and get a quality company. Joe Nuccio: We did not. The reason we didn’t is we have a pretty diverse portfolio. We have all the channels — residential, small business, integrated systems, government. At all of our branches, through internal sales and through acquisitions, we have always covered those opportunities. So we have really just stayed the course. For example, Charlotte [N.C.] for us is a great residential market. It’s a great small business market. We didn’t really have a lot of large commercial like we have in all of our other branches, so we have looked in that area for a large commercial company. That is how we pinpoint. But really the economy didn’t force our hand. Our performance was good in 2009 and 2010, so we didn’t have to bolster anything. We just stayed with the same plan that we’ve had for the last seven or eight years. Pam Petrow: We responded early and quickly to the economic and market changes over the past few years. Despite the recession there was still business to be won and we focused on those opportunities. Vector has had very positive results in spite of the recession. Therefore, we did not have the need to use acquisitions as a counterbalance to underperformance or to offset spikes in attrition. We were in the pos-
gardless of the challenges of the economy we’re still having solid RMR growth years. In fact, we’re experiencing record organic growth and overall RMR growth. That caused us to refocus. We compensated in the right direction for the lack of the construction industry. What are your acquisition plans for 2011, and how does it contrast with your organic growth initiatives? Mahler: We have more prospective acquisitions now in our active working base, but we really feel that we can’t add more than one new location per year. Right now I have four companies in mind — one of those will close in 2011. If two of them came at me I would have to slow walk the other into 2012. You have to really make the people in that operation feel good and successful. Otherwise you just spent the money and you are not going to get the desired results. So we will do one new platform or location per year. The fold-ins — smaller companies that want to sell their accounts that we fold into our 15 locations — if it were possible I would do one per week. Namely because these are high margin transactions. We have done more than 80 fold-ins. You are able to retain the best salespeople, the best technicians and keep none of the infrastructure. If their accounts average $30 per month in RMR, and your cost is $5 per month to monitor and bill, just think what that margin is. ➞
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EXECS DISCUSS ACQUISITIVE WAYS
Nuccio: For us it is lock and load. If we feel there is great opportunity, we are going to be aggressive. There are a lot of opportunities we still have in our [inventory of potential sellers] that we are going to pursue. We think the market and the pricing are right. We think the fits are right and it will continue to leverage our company, so internally we continue to create more internal sales and look at different channels. We look at what are the best opportunities to opening up new markets and our continued strategy of leveraging current infrastructure by adding a channel into it, or just more customers to sell to has worked really well in this economy for us. It has also worked well for the buyers. Petrow: We are optimistic that 2011 will be another successful year for our acquisition successes. We will continue to look for acquisition candidates that make sense in terms of talent, quality of the customer base and geography. We have specific growth expectations for our existing locations based on their markets. We overlay an acquisition plan on the organic growth based on numerous factors, including growth into new markets, areas we want to increase our density and acquisition opportunities we think may be available. Tolliver: We will continue implementing our strategic five-year growth plan, which laid out what we wanted to achieve internally for organic growth. It is really based on an RMR amount. We also incorporated a particular amount of acquisition growth. The economy to an extent has created some opportunities from an acquisition perspective. This is especially true with smaller dealers who have been concerned with
We think the [acquisition] market and the pricing are right. We think the fits are right and it will continue to leverage our company, so internally we continue to create more internal sales and look at different channels. Joe Nuccio, President and CEO ASG Security
uncertainties about health-care plans and capital gains tax. As part of our strategic growth plan, the ideal acquisitions are within our footprint that we roll into our existing operations. It makes us that much more efficient and ultimately the RMR drives margin. We are able to manage our expenses that way and take advantage of the additional RMR through the acquisition. We target a variety of accounts or potential acquisitions doing mailings and so forth. Sometimes you get some nice surprises. What advice can you offer a security dealer who may be exploring an exit strategy? Mahler: Be sure to have good contracts that are assignable and have the necessary liability protection for the dealer. You will also want to be sure to have detailed financial reporting with an accurate picture of gross and net — after resigning moves — plus, cancellation rates and A/R [accounts receivable] aging. Detailed information concerning their organic growth will need to be documented, such as average RMR per installation, profit margin on both commercial and residential installations, and number of installations for each of the past three years. Also, draft a complete organization chart
We overlay an acquisition plan on the organic growth based on numerous factors, including growth into new markets, areas we want to increase our density and acquisition opportunities we think may be available. Pam Petrow, President and CEO Vector Security
with titles, time with the company and current compensation. Nuccio: The most important thing to think about is what you would want to see if you were the one acquiring. Then you start to begin to get all your information in a format that is easily available. Having contracts with all the main clauses, such as limitation of liability, thirdparty indemnification, contract term and assignability, is important as most acquirers will have guidelines in order to get the deal through their process. Next, it’s important you know how much RMR you have and have it reconciled against new sales and attrition. If you do not have a central station you must make sure you own all the lines and they are not commingled on any other receiver. If so, you would need to reprogram them onto clean lines. The more documentation you have, the smoother the process goes and, in turn, produces the highest valuations. It is important you be able to give someone a comfort level of all your assets you are including in the sale. If residential, you need to have good credit scores or history of payment to ensure the customers are solid. In addition, your A/R needs to be very clean; anything over 90 is not going to be considered qualified so you must make sure you have good, clean receivables. Before you go to market do this audit on yourself to see how well you meet the criteria. The highest valuations are always for the companies that demonstrate best practices on contracts and customer support payment history with attrition information. Petrow: Many sellers are very handson and don’t get an opportunity to step back and really look at their business objectively. My advice would be to set
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EXECS DISCUSS ACQUISITIVE WAYS
We used to do more larger-scale projects, more integrated-style projects when the building industry was strong and booming. About twoand-a-half years ago we refocused back on RMR growth. Brad Tolliver, Vice President and General Manager Per Mar Security Services
aside some time and really understand what you have. How much rate are you billing? Do you have contracts for this rate? Do you own the phone lines that are programmed in your control panels? Are your vendor bills accurate for monitoring services, etc.? To get the best value for your business, taking some time to audit your business is important because over time changes happen, mistakes occur, personnel leave and procedures aren’t always passed on accurately. From a personal perspective the seller needs to determine if they are looking purely for a financial transaction or looking to continue in the industry. If it is a financial transaction, you want to make sure whoever you are selling to has a culture of customer service so that your customer base remains satisfied and attrition rates stay low. If the seller is looking to continue, they need to take time to understand the buyer’s culture, expectation and what their role will be post acquisition. Ultimately, you should look to work with someone you can trust. If you trust the people you are working with, you can work through all the details that will come up throughout the acquisition process and the result will be a positive experience. Tolliver: I would first look at a quality regional company to sell to that knows your market and would focus on quality service for your hard-earned customer base. The other key has to do with old-fashioned trust and people you can work with and trust after the closing. Regardless of the initial thoughts and contract language, you will have ongoing contact with the company that acquires your customer base, and you want them to invest in the market and make decisions for the long-term benefit of the customers and company. It’s a partnership you want to be proud of in your community. Do your homework and talk to other former owners who sold to the proposed company. Find out what level of trust they have in the company and ask for a reference list of sellers to contact. I would visit the company and talk to the employees, see if they are long-term and if they appear to be happy with the company. This is a good indicator of how they will treat your employees and customer base. What does the company’s strategic growth plan look like? Are they financially solid and viable for the future of your customer base? You do not want your customers to have multiple acquisitions moving forward that create ill feelings and chaos in the market. ■ FIND IT ON THE WEB F More conversation with these executives will be featured in SSI’s “Under M Surveillance” blog. Visit securitysales.com/blog. S www.securitysales.com/freeinfo/12281
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❯❯The Business of Security OPERATIONS MANAGEMENT
©iStockphoto.com/flyfloor
SERVICE
With a Recurring Revenue
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Service and maintenance agreements have become a leading weapon to fend off economic evils while helping security companies survive to grow another day. Discover their advantages and how to successfully integrate them into your business.
R
By Scott Goldfine
ecent economic challenges have driven home how critical it is that businesses either have deep cash reserves and/or a money source that continues to flow during even the leanest of times. For installing security contractors, the latter means establishing a solid base of recurring revenue and getting a higher return on every account. One of the best ways to accomplish this is via service and maintenance agreements that extend the customer relationship and financial commitment. The benefits of emphasizing service and maintenance are numerous. They include lowering attrition by increasing customer retention; uncovering upsell opportunities; making cash flow more predictable and legitimizing the business in the eyes of creditors/investors; resolving false alarm issues and ingratiating first responders; and increasing the long-term value of the entire enterprise in a way that makes it appealing to potential suitors. No wonder providers have begun to concentrate on these agreements. A recent report by IMS Research projects service and maintenance will account for 33.4 percent of America’s security systems integration market by 2014. “Companies offering a value-added service contract are seeing strong growth and greater resistance to the economic downturn,” says IMS’ Ewan Lamont. “Companies with high levels of RMR [recurring monthly revenue] are also more attractive to investors and acquirers.”
Two CEOs who have had great success making service and maintenance a core part of their businesses along with a consultant specializing in this area offer guideposts to help others take advantage of a golden opportunity. They explain how to incorporate it into contracts and the standard course of operations while effectively managing costs and maximizing profitability.
What to Include, Exclude While the notion of service and maintenance contracting may seem foreign to some security dealers and systems integrators, it has long been a significant facet of how other professions conduct their business. Examples include HVAC contractors (e.g. $85 for semiannual inspections); phone and
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SERVICE & MAINTENANCE CONTRACTS
TRG Associates. “It also presents the opportunity to offer special incentives such as replacement parts at a discount.” Examples of what to include in a service pact are: labor only; labor and parts; inspections for fire code, health-care or child care compliance; preventative maintenance; and system testing. Examples Three keys to The Protection Bureau’s success with service agreements are: 1) make it a standard part of installation or of possible exclusions inmonitoring contracts; 2) properly train and staff support perclude: acts of God; homesonnel; 3) give those clients top priority and respond fast. owner do-it-yourself (DIY) gas companies ($5/month for interior repairs; system abuse; service performed by a third party; power or utilline protection); cell phone service proity failure; war or terrorist acts; riots; viders ($4.50/month for device insurfloods; and earthquakes or other natuance); appliance vendor ($89/year for a maintenance plan). So why should se- ral disasters. In addition to leaving little room for curity be any different? “We originated as a telecommuni- ambiguity and setting reasonable expectations for when service or repairs cations firm where it’s a very standard are needed, bundling maintenance procedure to have maintenance agreewithin a basic client contract helps ments,” says Michael Vertolli, CEO ensure your operational and time/laof Vineland, N.J.-based ComTec Sysbor costs are covered from the get-go. tems, whose company expanded into Sometimes, it can even help you look security in 2006. “As we grew into IT like a hero to your customers. and security, we looked at the success“We do an annual review of each cliful things we did in growing telecom. ent’s service plans, and do a cost acAnd that was creating customer loycounting as to what it has actually cost alty, having a reason customers could reach out to us and us feel it was not us to do that. If we find that we’re actuonly worth our time but was something ally ahead of the game, then we send the client a notice saying that we’ve done they had already paid for.” That last point speaks to the logic in the experienced modification and the next year’s bill has been decreased by making service and maintenance an inclusive element of just about any instal- X amount for that coming year,” says Matthew Ladd, president of Exton, Pa.lation or other client contract. Building it in from the outset eliminates hav- based The Protection Bureau. “That acing to sell it as an add-on and makes tually builds a lot of good will.” life easier for both your company and the customer so there are no surprises. Developing a Pricing Scheme When handling service calls for existSo how do you price it so you not ing customers without service agree- only boost profitability but can potenments (instead being handled on a time tially pass some of it along to your treaand materials basis), offer a deal that sured customers? discounts or makes that visit free. Brady recommends using 5 to 10 “Such an agreement helps outline percent of the installation price divided and define the specifics of what’s in- by 12 months to determine the maincluded, excluded, terms and pricing, tenance portion of bundled RMR on etc. to maintain the security or life- a commercial account. For residential safety system,” says John Brady, princustomers, he suggests adding $10 to cipal of Old Saybrook, Conn.-based $15 a month to the package and charg-
ing for parts only when service occurs along with free labor. Those are good starting points, but in practice figuring out what makes the most sense may require taking several variables into account. The Protection Bureau uses 12 to 14 percent of the value of the installation or system as a baseline. The type and complexity of the system (i.e. intrusion vs. video surveillance vs. fire/life safety) as well as the application (i.e. retail vs. health care vs. office) and environment (i.e. weather in Pittsburgh vs. Los Angeles) play a role. One of the value-adds The Protection Bureau incorporates into its service plans as a customer incentive is priority response when assistance or repairs are needed. But such promises do not mean much if you don’t deliver when called upon. So Ladd also stresses the importance of proper training and adequate staffing. “If we have to choose between going to a time and materials customer or a service plan customer, the service plan gets first response,” he says. “But the biggest factor is to make sure your people are trained on the products and services you offer. Make sure your service department is staffed appropriately. Can you respond in 24 hours or less? Nothing frustrates a client more than paying for a service plan and then having to wait eight weeks to get somebody out there.” ComTec helps its clients feel like they are making an informed, intelligent decision by signing up for system maintenance. The company details the multitude of things that are likely to or could go awry and just how costly such eventualities could be fiscally as well as productivity wise. “We talk about what it would cost to maintain their project, as well as the software applications and equipment over its life expectancy. We talk about some of the things that could go wrong with not having a maintenance agreement,” says Vertolli. “Maintenance agreements are insurance for both parties. There is a mathematical balance between what the equipment costs the end user, which would be the vendor’s cost plus markup, and then there is the
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SERVICE & MAINTENANCE CONTRACTS
vendor’s cost minus any depreciation in the market.” For those starting from scratch or looking for more ballpark figures, some additional metrics from TRG Associates are helpful. The company’s data indicates the average number of annual service visits for a commercial intrusion alarm system is .85; access control or CCTV, 1.75; and fire, 2.5. Internally, job costing must include administrative, accounting and customer service expenses, as well as field technicians. The latter, according to TRG, tallies up to $3,600 to $5,504 per month, including salary, benefits, truck and communications.
New Service Paradigm Emerging Rapidly advancing changes in security technology is having a profound impact on the way products and systems are used and serviced. Evermore sophisticated, softwaredriven security and fire/life-safety equipment is helping reduce time lost in the field and the associated costs thanks to capabilities for these devices to be diagnosed, updated/upgraded and sometimes even repaired remotely. While this may require a little more training and IT expertise on the backend, it is more than offset by avoiding all the costs related to rolling a truck. If a field tech is required, it can lessen time spent at the location. “A high percentage of the time we gain access to the customer’s system and can actually provide some remote service diagnostics,” says Ladd. “When we have the capability to get into their systems remotely, we might be able to make software changes. Or we can troubleshoot what the problem is so when the service technician actually goes onsite he has a better understanding of what the problem is and can get the repair done faster.” As a telecom and IT specialist expanding into security, ComTec is espe-
FIND IT ON THE WEB F LLearn more from CEOs Matthew Ladd aand Michael Vertolli in exclusive Q&As featured in SSI’s Under Surveillance blog (www.securitysales.com/blog).
and material basis to avoid large losses under a contracted service RMR basis.” On the other hand, sometimes having more interactions, or touches, with clients translates into even more revenue. Being intimately familiar with their systems, environment, applications, needs and expectations can prove advantageous in ComTec Systems has found great success in transplanting the models it established in telecommunications and IT to creating opportunities to security, including service and maintenance. Networked syssell upgrades, new prodtems and their remote diagnostics offer new opportunities. ucts and additional sercially familiar with providing service vices that improve the bottom line of remotely and very comfortable with both your company and that of your physical security’s migration onto en- customer. terprise networks. According to Vertol“The more you’re in touch with a clili, as convergence erases the physical- ent and keep them updated with what’s logical barrier service and maintenance going on with their facility, be it their becomes even more integral to the sehome or business, you’re always findcurity proposition. ing opportunities to help the client “Security overnight has become IT. increase their level of security,” says And where the IT world turned around Ladd. “It’s about knowing what sysand became very profitable was rectems are out there, knowing the capaognizing the stuff people were buy- bilities and then giving the client the ing had a lot of applications that made right system or upgrades so they can maintenance, software and support enhance their system — and many agreements important,” he says. “So times, save them money.” in advanced security applications, it’s At the end of the day, it is to the greatest maintenance in the typical way of disbenefit of both your company and its clipatching an engineer or technician but ents to foster a true business partnership it’s also end-user support. IT profesin which each party has a vested interest sionals don’t want to have something in the other. A service and maintenance on their network that isn’t properly upcontact helps bind that relationship todated and supported.” gether, and, oh by the way, it also simplifies administration and billing. “Putting your customer base under Building a Kinship With Clients a service agreement will reduce your In some cases, it may not be in a probilling and collection efforts on every vider’s best interests to be retained by $85 service call you used to work so a client in a service and maintenance hard to collect,” says Brady. “The cusarrangement. While these contracts can often lead to a strong partnership, tomer will feel like the service you are there is a difference between being providing is more encompassing and you will see better customer retention. counted on within reason as opposed In addition, under an RMR scenarto at the beck and call of an overly deio you can price increase this service manding client. periodically as you do the monitoring “There will always be those customers side of your business.” who use their security systems excessive■ ly based on habit, environment or abuse,” Editor-in-Chief Scott Goldfine has spent more than 12 says Brady. “Keep track of those customyears with SECURITY SALES & INTEGRATION. He ers who require constant service as it may can be reached at (704) 663-7125 or scott.goldfine@ securitysales.com. be better to switch them back to a time
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©iStockphoto.com/thesuperph
ACCESS CONTROL TECHNOLOGY
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t used to be that pulling wire to every access point was a given for any access control installation if it was going to be on the network. The trend moving forward will be an increase in the number of access points on a network, which is good for security integrators. However, fewer of those doors will be wired to it. This does not mean reduced profits for the security integrator. Actually, it’s quite the opposite. The integrator can typically charge less per door making the project more palatable to the end user while still making more profit dollars on the lower price, since labor and material expenses are significantly reduced. This is the perfect scenario in today’s tight budget economy.
There are basically three viable options available to deliver networked access control that is centrally managed. In addition to the obvious wired network, the other two are wireless and virtual smart card networks. Following is a comparative look at each one.
Wired Is Effective but Costly Once installed, the wired network continues to offer most of the features desired by end users and this is what most security integrators have the most experience with. The strengths of the wired access control network include: real-time monitoring; centralized management; constant power source; and features like global lockdown. However, it also usually has the highest total cost of ownership (TCO) for the end user of the three network technologies discussed here. Tight budgets aren’t going away so it is imperative to eliminate costs that do not offer a tangible return on investment (ROI). For example, one of the common justifications for wiring an access point in the past was to enable centralized management of all access points. This precluded having to revisit the door to add users, change schedules, get an audit trail, etc., which is necessary for truly standalone locks. However, all three network technologies covered in this article allow you to centrally manage access control, without having to revisit the door to make changes or get reports. ➞
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NETWORKED ACCESS CONTROL
Wired, wireless or smart card (top to bottom) technologies all provide centrally managed access control, without having to revisit the door to make changes or get reports. Thus, consider the alternatives by re-evaluating how many access points warrant wired’s higher costs.
Therefore, with wired now being the most expensive way to centrally manage the network, it is essential to consider the cost savings of the alternatives by re-evaluating how many access points truly warrant the increased cost of being wired. Another prior justification for going wired has been to supply power so that you don’t have to ever replace batteries. Today, you can get electronic access control products that are optimized to utilize power very efficiently. Secondly, battery technology has also improved to where the shelf life exceeds five years. Another key factor to keep in mind with a wired system is that during installation you typically install a reader on the wall, mullion or similar location, and then also install an electromechanical security device and power source to physically secure the access point. Once you move away from a wired access point you can install an integrated electromechanical product that contains both the reader, the physical security device and power source, all in one. This significantly saves time at installation and reduces component sources.
Wireless Saves Time, Money A wireless network is a credible alternative to a wired system that gives you
virtually all of the same functionality with significant savings on the installation costs. Wireless technology has proven itself in fire and intrusion applications, and more recently has been used for access control and CCTV. While there are different types of wireless technologies and topologies within the category with varying levels of effectiveness, the key benefit for all of them is that you do not need to run wire to every access point. As with
most product categories, the quality and reliability of wireless access solutions ranges from fair to excellent. Some wireless products being sold today are not networked, but simply have the ability to receive updates without visiting the door. The better wireless products provide the same two-way communication/monitoring features as a wired system and can quickly execute global lockdown, audit reports and other commands. Leading wireless systems also have built-in redundancy such as a mesh network to ensure that the wireless network is always operational if a particular router is down. The better systems also manage power very efficiently to extend battery life. Adding a wireless access point typically involves checking signal strength with a meter from the closest routers to the access point. This is very similar to checking the number of antenna bars present on a mobile phone. Because there are no wires to run for network or power connections and the reader/locking device are fully integrated, there is significantly less labor and material per door for a wireless access point. A typical wireless router can support 12 to 25 access points and can be installed much faster than the associated wired door panel components. ➞
A wireless network is a credible alternative to a wired system that offers virtually the same functionality with significant savings on the installation costs. Wireless has proven itself in fire and intrusion alarm applications, and more recently for access control and video surveillance.
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NETWORKED ACCESS CONTROL
Some manufacturers’ products are so installation friendly that you can have an access point installed and fully operational on the wireless network in 30 minutes. The beauty of wireless is that it lends itself to much of the installation convenience of a standalone lockset while also enabling the centralized management convenience of being on the network. If needs change, locks/readers can be easily relocated to another area with minimal labor costs. Also, for applications where a combination of networked and standalone locks are in use, there are wireless systems that allow you to manage wireless locks on the network and standalone locks off the network with the same software. Wireless is not feasible or desired in some installations since for a wireless access point to be operational, wireless routers must be placed within range (e.g. every 50-300 feet depending on obstacles, wall construction, etc.). However, wireless may be the optimum solution for historical buildings and other retrofit applications where creating cable routes is not practical.
Smart Cards Are Smart Alternative A virtual smart card network is a great compromise between a wired and wireless network that can provide much of the same functionality of both options with some additional advantages. The deployment of smart card technology like Mifare and DESFire (large memory, secure, read/write cards) using radio frequency identification (RFID) interfaces (as opposed to chip contacts) has made a virtual smart card technology network viable. This differs in philosophy from traditional wired, standalone or even wireless system design in that the access control device responds to the role on the card, as opposed to the user ID on the card. This means that access points never have to be updated as user populations change. Updates are accomplished by one or more wired access points that also serve as “charging” stations. They can be placed at staff entrances, break rooms, etc. As users move throughout a
A virtual smart card network is an alternative to a wired or wireless network The key advantages are being able to centrally manage online panels, edge readers and intelligent offline locks from one application. The number of intelligent offline doors is unlimited.
building, updates and audit logs are regularly transferred to/from the database via online and offline access points. A smart card can also function without any wired access points. In this scenario, a bidirectional reader plugged into a PC serves as the charging station to read/write to the cards. Some systems offer higher levels of data encryption on the card to prevent data tampering; this is very important as once the card is charged, end users must rest assured that nothing fraudulent can happen. Roles that are put onto the cards and digitally signed can be set to expire after a predefined time, forcing the person to go back to a charging station and refresh his/her roles and get any changes that have been made. This is a tradeoff between convenience and security. The key advantages of this type of network are that you can centrally manage online panels, edge readers and intelligent offline locks from one application. The number of intelligent offline doors is unlimited. The typical architecture of data on a smart card network consists of a network appliance, one or more wired bidirectional readers and an indefinite number of intelligent offline locks. The network appliance includes an operating system, database and Web server. It
is preconfigured to be up and running in minutes with a Web browser. The smart card network approach is also a great solution for remote applications. Privileges can be written to the card at a central office location, and then when the respective user visits a remote site, the lock on that door will read the card and determine if access should be granted. If necessary, information can be transferred to an access point via smart cards in the network to no longer allow access for a particular card (e.g. employee is terminated). From an installation perspective, the intelligent offline locks are even easier than a wireless network as there are no concerns about strength of RF signals, router locations, interference, etc. The incremental cost of adding an intelligent offline access point to the smart card network is only the self-contained lock itself. Monitoring for wired access points is real-time, but is obviously not for the intelligent offline access points. However, for many applications this blend of wired and offline access points networked via a smart card is a very practical and affordable option. ■ Mark Allen is Marketing Manager for Winston-Salem, N.C.-based Kaba Access Control (www.kabaaccess. com). He can be reached at mallen@kws.kaba.com.
56 securitysales.com • FEBRUARY 2011
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Invitation to Attend
If you can join us on April 5th, please send an e-mail to: sammys@bobit.com
The staff of SECURITY SALES & INTEGRATION Magazine invites all of our devoted readers to the Industry Hall of Fame & SAMMY (Sales & Marketing) Awards Presentation! Since 2005, the Hall of Fame has honored outstanding lifetime achievements. For 15 years, the SAMMYâ&#x20AC;&#x2122;s has recognized dealers/integrators for sales, marketing, installation & business excellence. T Tuesday, April 5, 2011 at 4:30pm
FOR MORE INFORMATION VISIT WWW.THESAMMYAWARDS.COM WWW.SECURITYSALES.COM/HALLOFFAME
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SSI01-16.11
Please RSVP to: sammys@bobit.com Sands Sand Expo and Convention Center, Room 602 Las Vegas, NV (Evening before ISC Exhibits open)
1/25/11 2:25:30 PM 1/13/11 AM 1/11/11 10:27:24 2:58:00 PM
Ad Index
Go to www.securitysales.com/freeinfo to request FREE product info.
PAGE
FREEInfo#
PAGE
FREEInfo#
AES Corporation ..............................................................................39
12199
Moxa Americas, Inc. ........................................................................43
12247
Affiliated Central, Inc. ..................................................................... C2
12272
National Monitoring Center (NMC) ...............................................17
12314
All American Monitoring ...................................................................5
12204
NVT .....................................................................................................3
12184
Altronix ...............................................................................................6
12245
Panasonic System Solutions Company ..........................................25
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Arecont Vision ............................................................................ 34-35
12276
Rapid Response Monitoring ...........................................................15
12105
Axis Communications......................................................................12
12308
RSI Video Technologies ...................................................................31
12256
Bolide Technology Group ..................................................................7
12193
Schlage .............................................................................................40
12153
Campus Safety - 2011 ......................................................................65
—
Schlage .............................................................................................41
12187
CNB Technology, Inc........................................................................51
12321
Schlage ................................................................................Bellyband
12153
DSX Access Systems, Inc.................................................................11
12231
Speco Technologies............................................................................1
12142
EasyLobby, Inc. ................................................................................37
12185
Speco Technologies.......................................................... CoverSnipe
—
EMERgency24 ................................................................................ C3
12136
Sperry West, Inc. ..............................................................................53
12286
FireNetOnline ..................................................................................58
12312
SSI - Digital Edition .......................................................................... 6
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HID Global .......................................................................................27
12234
SSI - Hall of Fame ............................................................................57
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HIKVISION ......................................................................................47
12233
SSI - PDQ..........................................................................................63
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Honeywell Security ......................................................................... C4
12103
System Sensor ..................................................................................21
12209
ISC West ...........................................................................................55
12163
Video Insight ....................................................................................19
12192
Kirshenbaum & Kirshenbaum, PC .................................................58
12253
Vitek Industrial Video Products, Inc. ..............................................44
12281
Linear Corp. .....................................................................................45
12127
Winsted .............................................................................................49
12135
Company listings are provided as a courtesy — publisher assumes no responsibility for errors or omissions.
KIRSCHENBAUM CONTRACTS
TM
Sales.......................................Residential/Commercial............................................$200.00 Monitoring .............................Residential/Commercial............................................$200.00 Service....................................Residential/Commercial............................................$200.00 Lease.......................................................................................................................$200.00 Commercial: includes supplemental rider for add ons and to increase limitation of liability All-in-One (Not available in all states)......................................................................$600.00 Sales, Monitoring , Service Contracts (one contract) Residential/Commercial Disclaimer Notice....................................................................................................$175.00 (Additional Equipment Systems & Service, VOIP Disclaimer Notice) Access Control Administration & Service Contract................................................ $375.00 Audio/Video ............................................................................................................ $375.00 Fire Alarm Sale & Installation - Commercial ........................................................$375.00 Fire Alarm Monitoring Commercial fire alarm monitoring.....................................$375.00 Fire Inspection Service .......................................................................................... $375.00 Contract For Fire Equipment/Extinguisher/Smoke Detector/Sprinkler & CO Inspection Fire Alarm All-in-One Combines Sales, Installation, Monitoring, Service & Inspection ...............................................................................................$850.00 Fire Alarm Lease - Commercial .............................................................................$375.00 Includes supplemental rider for add ons & to increase limitation liability Standard Fire Alarm Sales /Fire Suppression .......................................................$375.00 Sprinkler Equipment Contract CCTV Sale Sale, Service and Monitoring/Data storage & Monitoring…...................$375.00 CCTV Lease Supervisory Equipment Lease..............................................................$375.00 ....... .................$$375 375.00 .00 NAPCO I See Video® Sales & Installation Contract................................................$375.00 st ................... ......... ...... . ...$37 $3 5.000 Remote Video Monitoring Monitoring ito tori r Contract..................................................... ................. ...... ......... .. ... .. ........ . ... .. ........ $$375.00 3 .00 375 (through internet access - not throu through central ugh cen centra trall stat sstation) tation ion)) sponse nse Le Lease ase/Sa /Sale le - Con Consum sumer er Use Use.. ............................ .........$20 $200.00 Personal Emergency Respo Response Lease/Sale Consumer Use.................................$200.00 Residential Lease Installation, service, monitoring.................................................$200.00 e Ins Instal tallat latio ion, serv r ice,, moni m onitor toring ing.............................. ........... ................. ....$2 $200. 0 00 ntractor or Agr Agreem eement For su subb or or general g contract actor or..................... r ........................$20 $2 0.00 Sub-Contractor Agreement contractor.......................................$200.00 Completion Certifi cate...............................................................................................$40.00 letio tionn Cert C ertifi ificat cate e........................... ...................... . ............ ..... .......................................$ ..$40.00 mmer mercia ciall & Re Resident tial ial-- use use aft after e instal talla tal lation & eve lat ev ry se servic ce call Commercial Residentialinstallation every service Employment Agreement With Restrictive Covenant.............................................. $200.00 ploy oymen mentt Agre A greeme em ntt Wit W h Rest estric r tivve Coven C nantt............................................. .. ..... $2 200.00 C-1 For Form FFinancial in nci ina ncial a Statement Statemennt .............................................................................. ......................................................................... ..... ...... . . $50.00 $50.0 $50.0 0 0 UCC-1 Central Station Contracts $375.00 ntra ral Sta ation ion Co Contr raccts ........................................................................................ ..................................................................................... .. ...... ...... .. . $3 375. 5.00 00 wayy con ntra ract bet be weenn c/o wee /o ins stalleer & sub bscrib ber, sseparate eparaate for form m wher w heere 3-way contract between installer subscriber, where c/o issue certificate installer /o is ssue UL ce ert rtificcate forr inst tallerr nstal ta lerr Co C ntrrac act............... ...... ................ . ............ . ...... . .......... .. .............................. . ..............$ $375 375.00 00 Installer Contract.....................................................................................................$375.00 Stationary Guard Sta atio t nar aryy Guar ua d ““Rent-A-Cop”..............................................................................$375.00 Re ent-A -A-Co -Cop”...... ................... .............................. . ...................... ...... .. ... ...... .......$37 375.0 00 Tel eleph ephone on Sa Sale les.…..................Comm mmeerciaal or R Re sideential al ........................................ ....................... .. .......... ...... ..... ...... ... $20 $200.0 0.000 Telephone Sales.…................Commercial Residential $200.00 Telephone Service Residential $200.00 Tel e eph ephone one Se Servic ce ..................Commercial ....... ...........Com Commer me cia ial or or R eside dentia iall ....................................... ................. .......................... $$2 00 000 00.
Order Industry Approved Alarm Contracts On Our Website at:
Al Colombo’s Safety & Security Blog
On Al Colombo’s Safety & Security Blog you’ll find new, exclusive content related to technology and administrative issues that center on life safety and security. There’s no need to wait until the next magazine issue arrives in your mailbox. ± Winners of the “What’s Wrong With This Picture” ± Questions From the Field, Part 1 & 2 ± Take our Public Camera Poll ± Public Cameras and Public Crimes ± Reader Response to this Blog ± Honor Among Thieves ± For the Love of Technology ± What’s wrong with this picture? (contest) ± Acting as a Team ± Alleged Crimes Catch up to Local Scrap Metal Dealers ± Retailers That Value Initial Sale Above Long-Term Relationships ± Shopping for an Alarm System and More on PINs ± A Word About Passcodes & Passwords
Read it today on Al Colombo’s blog.
Go to: www.AlColombo.info.
www.alarmcontracts.com www.securitysales.com/freeinfo/12253
www.securitysales.com/freeinfo/12312
58 securitysales.com • FEBRUARY 2011
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The Essentials DMP Supervised Wireless System
The Smart Devices 1100 Series from Springfield, Mo.-based Digital Monitoring Products (DMP) features wireless UL-Listed devices including smoke detection; two-way supervised communications; and a built-in survey LED for confirmed communications. PIR sensitivity, pulse count and walk test can be programmed over the air from the keypad or from the central station using DMP’s two-way 900MHz frequency-hopping spread-spectrum communications. Note: This information corrects an inaccuracy that appeared in December’s Top 30 Technology Innovations.
Bosch DLA 1200 and 1400 Series Storage Appliances
www.securitysales.com/FREEInfo/12400
Bosch Security Systems Inc. of Fairport, N.Y., releases the DLA 1200 and 1400 Series storage appliances for up to 64 or 128 channels, respectively, of IP video recording. Powered by the company’s video recording manager (VRM) software, the appliances offer storage capacity of up to 4TB for the DLA 1200 Series or 8TB for the DLA 1400 Series. Their low-maintenance embedded design combines NVR server capability with intelligent video storage to reduce possible points of failure in a system, according to the company.
GarrettCom 6K Managed Ethernet Switches
Fremont, Calif.-based GarrettCom Inc.’s Magnum 6K line of managed Ethernet switches comes equipped with the company’s managed networks software (MNS-6K) and has four 10/100 copper ports. Featuring fiber-rich, modular switches that can be configured with a variety of AC or DC power options, the line meets IEC 61850 and IEEE 1613 environmental standards for electric power substations. www.securitysales.com/FREEInfo/12402
www.securitysales.com/FREEInfo/12401
SECO-LARM 6-in-1 Multipurpose 12VDC Tester
Irvine, Calif.’s SECO-LARM’s ST-BT02Q six-in-one multipurpose 12VDC tester performs six essential tests in the field, including continuity, voltage, load, polarity, voltage drop and PTC fuse. The unit is built with color-coded strength-indication LEDs for load, voltage, and PTC fuse testing. Also included with the unit are illuminated power connectors to indicate whether 12VDC, 24VDC or AC power is being used. The product is built with an overheat indicator and includes alligator clips for convenient use in the field. www.securitysales.com/FREEInfo/12403
Comtrol RocketLinx PoE Plus Rack Mount Switch
New Brighton, Minn.-based Comtrol’s RocketLinx ES7528 is a fully 802.3at-compliant PoE Plus rack mount switch featuring 24 10/100 Base-TX Ethernet ports and 4GB uplink/SFP combination ports. The ports provide high speed uplinks to higher level backbone switches while advanced ring technology enables the ES7528 to aggregate up to 12 fast Ethernet rings and 2GB rings providing high quality data transmission with less than five milliseconds network recovery time. The product provides a 12.8G backplane with integrated nonblocking switching function. www.securitysales.com/FREEInfo/12405
Videx CyberLock High Security Electronic Locks
The CyberLock by Videx of Corvallis, Ore., is an electronic version of a standard ardd mechanical lock cylinder. Keys associated with the electronic lock can be programmed med with the specific access permissions. Both the electronic key and lock record openings and exceptions including unauthorized attempts to enter. The system’s electronic keys cannot be duplicated or copied at a hardware store, which erases the threat of unknown keys in circulation, according to the company. www.securitysales.com/FREEInfo/12404
FIND IT ON THE WEB F For more products, visit www.securitysales. F com/products co
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The Essentials ADI A/V Products Catalog
ADI of Melville, N.Y., releases its 2010/2011 A/V products catalog for North America. The resource guide provides dealers with a listing of ADI’s A/V solutions, technical information and vendor information. The catalog introduces brands and technologies available in both the United States and Canada, and serves as a reference guide to custom installers and security dealers expanding into the A/V market, according to the company. With more than 70 full-color pages, the catalog highlights products from more than 40 manufacturers to help dealers design complete residential and commercial systems. www.securitysales.com/FREEInfo/12406
GVI Security autoIP Auto Focus Network Camera
Based in Carrollton, Texas, GVI Security’s autoIP auto focus network cameras are designed to provide high quality, 1.3-megapixel resolution video in the most demanding light conditions, according to the company. High video quality is achieved by combining 1⁄3-inch CCD ex-view-HAD progressive scan image sensor, infrared (IR) cut filter and wide dynamic range capability. H.264 compression retains the high video quality at a low data rate, while the anti-vandal housing with IP-66 rating provides a rugged package for both indoor and outdoor applications.
Federal Signal 300FP Field Programmer
Based in Oak Brook, Ill., Federal Signal’s Model 300FP field programmer is compact and features an integral playback speaker that enables users to review messages and tones before the module is installed into any compatible devices. Weighing less than one pound, the 120VAC product features a heavy-duty aluminum housing with a corrosionresistant black powder coat paint, pushbutton and LED indicator light. Transfer software is compatible with Windows 7, XP and Vista.
www.securitysales.com/FREEInfo/12408
www.securitysales.com/FREEInfo/12407
NAPCO Custom Alpha Door Keypad
Amityville, N.Y.-based NAPCO Security Technologies Inc. reveals the Gemini P1664DK1PK (GEM-P1664) custom alpha door keypad. With multiplexing, the product can accommodate up to 64 end-of-line (EOL) zones. Supporting up to 64 user codes and 16 relays, the GEM-P1664 control features easy, menu-driven self-programming in addition to keypad programming for all zones. Additionally, the panel can be remotely uploaded or downloaded using the company’s Quickloader software. www.securitysales.com/FREEInfo/12410
Talk-A-Phone Flashing Emergency Blue Lights
Niles, Ill.-based Talk-A-Phone Co. unveils the next generation of flashing emergency blue lights, available in 120V and 12/24V versions, which are typically used in conjunction with emergency phones to draw attention to the unit. The ultra-bright all-LED blue lights feature exceptional 209 lumens peak rating and prismatic pattern to enhance visibility at greater distance, according to the company. www.securitysales.com/FREEInfo/11409
Visonic Outdoor IP Camera
Visonic Ltd. of Bloomfield, Conn., unveils the CAM4000 outdoor IP camera. The full featured IP Wi-Fi Ethernet outdoor infrared (IR) illuminated camera does not require Ethernet cable and works with Visonic’s newest revision of PowerLink2. The product can also operate independently as a standalone or system camera. The IP camera installs outdoors with 12VAC power only. www.securitysales.com/FREEInfo/12411
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Broadview Security (now ADT) accepts the 2010 PDQ award. Past winners include: Alarm Detection Systems, Altronic Alarms, Brink’s Home Security and Vector Security.
Call for Entries “Promoting Partnerships in Public Safety”
S
ecurity companies and law enforcement agencies work together as partners, sharing information and communicating frequently to protect public safety and serve their communities. The Security Industry Alarm Coalition (SIAC), False Alarm Reduction Association (FARA), and SECURITY SALES & INTEGRATION created the POLICE DISPATCH QUALITY (PDQ) program to promote cooperative best practices, to reduce unnecessary dispatches and give officers the most complete information when responding to alarms. We are looking for companies that exemplify an all-out effort to reduce false alarms from implementing ECV (Enhanced Call Verification, a.k.a. two-call verification) to utilizing ANSI CP01-compliant control panels, training customers and working closely with law enforcement. The best overall collaboration will be honored with the 6th Annual North American PDQ Award .
• The winning security company will receive $1,000 for hotel and airfare to attend June’s Electronic Security Expo (ESX) in Charlotte, N.C., and will participate in the award ceremony. • Monitoring and/or installing alarm dealers in the U.S. and Canada must mail an application postmarked by Feb. 28, 2011.
• Outstanding program ideas will be featured in SECURITY SALES & INTEGRATION magazine, in security association publications and their Web sites, and at ESX 2011.
• Security companies and local police officials should meet now to form partnerships in public safety.
WORKING TOGETHER FOR PUBLIC SAFETY
The SECURITY INDUSTRY ALARM COALITION and the FALSE ALARM REDUCTION ASSOCIATION Co-Sponsored by: SECURITY SALES & INTEGRATION Magazine and Honeywell Security
Download an application and the judging criteria package at
www.siacinc.org • www.faraonline.org www.securitysales.com SS2equip.indd 63 SS1110pdqfpha.indd 1
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The Essentials Avigilon Control Center 4.6 Network VMS
Silent Knight Selection Tool Software
The Silent Knight Selection Tool (SKST) software application by Silent Knight by Honeywell of Northford, Conn., is designed for fire alarm dealers to easily configure a bill of materials for any IntelliKnight addressable or conventional fire alarm system offered by the company. The software helps dealers create professional proposals containing product information. Additionally, users can automatically retrieve the latest data sheets from the Silent Knight Web site, providing the most up-to-date product information for print or E-mail.
Vancouver, British Columbia, Canada-based Avigilon’s Control Center 4.6 with high definition stream management (HDSM) network video management software (VMS) captures, transmits, manages, stores, archives, plays back, and exports HD video while efficiently handling bandwidth and storage, the company maintains. Data management includes enterpriseclass, intelligent video transmission, recording and storage features that organize and protect surveillance assets gathered from hundreds of cameras across multiple sites. www.securitysales.com/FREEInfo/12413
System Sensor CO1224TR CO Detector
System Sensor of St. Charles, Ill., releases its CO1224TR carbon monoxide (CO) detector with RealTest, a field functional CO test fully compliant with NFPA 720: 2009, the company says. The detector provides multiple mounting options and is quick and easy to install, test, and maintain, according to System Sensor. With a low current draw, the latest electrochemical sensing cell, and a six-year, end-oflife timer, the CO1224TR offers reliable protection. www.securitysales.com/FREEInfo/12414
www.securitysales.com/FREEInfo/12412
Sensoray USB Video Card With H.264 Compression
Sensoray of Tigard, Ore., releases its model 2253 USB A/V card with H.264 compression. Small in size (1.5 inches X 2.75 inches), the product features low power consumption (1.5W) and outputs an uncompressed low latency video stream along with the compressed video stream to facilitate previewing and real time image processing functions. The board can also perform as a decoder, converting the compressed A/V stream into standard analog video and audio signals. www.securitysales.com/FREEInfo/12415
ComNet ComWorx CWGE9MS Managed Ethernet Switch
Danbury, Conn.-based ComNet Communication Networks releases the ComWorx CWGE9MS, a managed Ethernet switch that provides 9GB 10/100/1,000TX/FX ports. The product’s Internet group management (IGMP) V1/V2 technology allows video data to be directed to a specific network address without slowing down the performance of the network. The switch makes available seven 10/100TX ports and two 1,000Mbps combo ports that are standard RJ-45 electrical ports.
Vitek WDR True Day and Night Camera
Valencia, Calif.’s Vitek releases the VTC-C770WDR surveillance camera, which utilizes Pixim Seawolf wide dynamic range (WDR) technology to control and display clear, crisp images in varied lighting conditions, according to the company. With a resolution of 700TV lines, 0.0002 lux sensitivity and 12VDC/24VAC dual voltage operation, the camera features advanced on-screen display and a true integrated camera recording (ICR) day/ night function. www.securitysales.com/FREEInfo/12417
www.securitysales.com/ FREEInfo/12416
64 securitysales.com • FEBRUARY 2011
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TARA SCHELLING EAST COAST SALES MANAGER Phone: 215-794-7015 â&#x20AC;¢ Fax: 215-794-7756 Cell: 609-288-0157 â&#x20AC;¢ Email: Tara.Schelling@bobit.com
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The Big Idea
Changing Landscape Emphasizes Need for Education IDEA of the Month
By Ron Davis rdavis@graybeardsrus.com
If you had just one really great idea you could share with the alarm industry, what would it be? This month’s great idea comes from Jerry Tester, owner of Security Alert Inc. in Winterville, N.C.
Tester’s great idea: No matter how much or how little amount of money you’re making, spend some of it to support your local and national associations.
J
erry Tester, proprietor of Winterville, N.C.-based Security Alert Inc., is a pretty savvy alarm dealer. We met up recently at a seminar for the North Carolina Electronic Security Association (NCESA) where I had a chance to recruit his expertise for this month’s column. In fact, I’ll be sharing more from our conversation in the March installment as well. After Tester initially shared his great idea, I nearly asked him for an alternative since it is a topic I have discussed prior in this column. But then it occurred to me that I was among more than 60 North Carolina executives who had committed valuable time to attend the association’s event. The fact that I was the main speaker or the topic had to do partially with acquisitions and mergers was of little consequence. The important thing is that people, some of whom I’ve known for 40 years, are still spending time and money in the pursuit of knowledge. This speaks volumes about the
continuing need for education and the role associations play in providing resources and forums to learn. Although education is a broad category, what I want to really focus on is “actionable knowledge” and that means just what it implies: obtaining knowledge about something that requires your immediate attention for action. People have long been talking about how the industry is changing and how it isn’t going to last much longer. For some time I subscribed to a portion of that theory, but then realized that crime will never go away. And while technology may improve and change modestly, the underlying technology used in the installation of alarm systems was going to remain pretty much the same. This last part, however, is indeed changing dramatically. It is one of the paradigm shifts that is occurring in our industry. It is a shift that requires independent alarm dealers to learn more about what’s going on in the industry. Although multiples for the
sale of monitored accounts have not changed significantly in the past five years, we are also seeing a quantum change in how systems are sold. Direct mail, direct marketing, door-todoor, do-it-yourself, bottom-basement monitoring prices, and so forth. What this all means is that while we are quietly going about our business and moving the shift forward, we’re starting to be surrounded by gatecrashers. Like those pesky ocean hijackers in little boats, one or two of them we can handle. An armada changes the game. Consider how the financial community looks at our industry. Ultimately, they’re lending money based on cash flow or, as we like to call it, a multiple of recurring monthly revenue (RMR). If an alarm dealer has sold an account that is paying $20 a month for monitoring and he gets a 35x multiple, he’s receiving $700 for that account. Multiply that by thousands of accounts and you’re talking about quite a piece of change. The question now becomes what do we do as an industry to protect our greatest asset — our RMR — while still remaining a good and viable competitor to these new entries into the industry? What does all this have to do with Tester’s great idea? It was the main topic of conversation at this particular association meeting! I’ll have some more thoughts on his intriguing suggestion in next month’s column. ■ Ron Davis is President of Davis Mergers and Acquisitions Group Inc., formerly Davis Marketing Group. Also known as The Graybeards, the company is active in acquisitions and mergers exclusively in the alarm business.
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Industry acquisitions Contact the Davis Group to valuate your company and prepare it for sale.
Anchor Alarms, Inc. Bigfork, MT Has been acquired by
Kenco Security and Technology Billings, MT
Seller exclusively represented by MERGERS & ACQUISITIONS
847-955-2345 graybeardsrus.com
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securitysales.com • FEBRUARY 2011 67
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Contending With Cutthroat Competition
W
e all know that the alarm business is extremely competitive. Unlike home improvement contractors that can get away with 100-percent markups, alarm companies often install alarm systems for cost, below cost or for free. Relying on recurring revenue from the monitoring contract, alarm companies hope to realize a profit over the long run. Additionally, alarm contracts sell like negotiable instruments at multiples ranging from 15 to in excess of 40 times the monthly revenue, so an alarm contract with recurring revenue has immediate value or equity for the alarm company. Although not the only avenue for recurring revenue, the monitoring contract may be the most popular. Even those throwback dinosaurs that don’t use contracts know they need monitoring contracts and usually get them. Most dealers don’t have their own central stations and subcontract the monitoring to a wholesale central station. The dealer tries to charge between $16 and $30 a month, while paying the central station from $2 to $6 or more, depending on the monitoring services provided. (I am referring to intrusion systems — expect to pay much more to the central station for fire monitoring, and you will be charging more for that service. CCTV supervised monitoring is also priced higher.) Everyone knows that price fixing in an industry violates all kinds of laws,
By Ken Kirschenbaum ken@kirschenbaumesq.com
and it’s not done in the alarm industry. This is not because you guys wouldn’t like to try and get away with it, but because this industry is so competitive it just isn’t feasible. Yet there are a few taboos, even in this industry. Wholesale central stations come in two forms. Some monitor only for the trade, others monitor for themselves and the trade. Dealers generally know whether their central also happens to
To illustrate how competitive monitoring can get and to quickly dispel any notion of the unfair trade practice of fixing prices, the Georgia market is upside-down over local competition. Although rumors are spreading faster than Grant went through Richmond, no wholesale central station offers direct monitoring to subscribers. One central station that monitors its own subscribers only (so I don’t classify it as a wholesale proOne central station that vider) offers those services for monitors its own subscribers $4.95. It’s not a secret. In fact only offers those services the domain name for the comfor $4.95. If they can make pany is 495alarm.com. If they a profit charging that price, can make a profit charging that well good for them. It’s the price, well good for them. It’s American way. the American way. Rumors that a wholesale central station is offering what the be one of their competitors, and there trade would consider pricing that is is nothing wrong with that relationship. too cheap is apparently not true, at But a central station that also hapleast not in Georgia. pens to be a dealer (installing, servicWhile it may seem to some that cuting and monitoring for subscribers dirate prices are inherently unfair, there rectly) will generally be smart enough is really nothing wrong with competo treat its wholesale central station tition as long as it’s on a level playand its dealer operation separately. ing field. An alarm dealer that wants The dealer side will pay for monitorto operate its own central station and ing just like any other dealer. More imoffer monitoring for basically wholeportantly, the central station will not sale prices is free to do so. How the offer wholesale pricing to the subeconomics work out is another matscribers directly. Thus the dealer will ter, but not really the business of that be competitive with other dealers. company’s competitors. ■ There would be little likelihood of other dealers supporting the wholesale Ken Kirschenbaum is a partner with his daughter, Jennifer, in the law firm Kirschenbaum & Kirschenbaum. central station if the dealer side was The opinions expressed in this column are not necesable to compete unfairly or the central sarily those of SSI, and the content is informational and not legal advice. station competed unfairly.
SECURITY SALES & INTEGRATION (ISSN 1539-0071) (USPS 511-590) (CDN IPM# 40013413) is published monthly with an additional issue in December, by Bobit Business Media, 3520 Challenger Street, Torrance, California 90503-1640. Periodicals postage paid at Torrance, California 90503-9998 and additional mailing offices. POSTMASTER: Send address changes to Security Sales, P.O. Box 1068 Skokie, IL 60076-8068. Please allow 4 to 6 weeks for address changes to take effect. Subscription Prices - United States $96 per year; Canada $96 per year; Foreign $140 per year. Single copy price - $8; Fact Book - $35. Please allow 4 to 6 weeks to receive your first issue. Please address Editorial and Advertising correspondence to the Executive Offices at 3520 Challenger Street, Torrance, California 90503-1640. The contents of this publication may not be reproduced either in whole or in part without consent of Bobit Business Media. All statements made, although based on information believed to be reliable and accurate, cannot be guaranteed and no fault or liability can be accepted for error or omission.
Legal Briefing
68 securitysales.com • FEBRUARY 2011
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Does That New Central Station Have Your Best Interests in Mind?
If your accounts were recently sold to another central station, protect your recurring revenue and switch to EMERgency24 Dealer-Friendly Contracts Q Maintain complete account ownership Q No forfeiture for late payments Q Cancel accounts with no obligations or cost Financial Stability Q No staffing cut-backs Q Continued investment in technology Q New headquarters in 2009 Q Fifth branch location in 2010 Full Line of Monitoring Services Q Fire and Burglary Q Personal Emergency Response Service Q Video, Two-Way, Internet and more A Higher Level of Service Q In-house electrical, telecom and software engineers Q Free newsletters and custom literature for end-users Q Free sales leads from multiple Internet sites
EMERgency24 has helped independent alarm dealers achieve success since 1967. We realize dealers spend decades building their account base to produce a reliable source of revenue. We also understand a dealer's frustration when these accounts are then sold to another company and they had absolutely no say in the deal whatsoever. If this has happened to your accounts and you are concerned about a decline in service, switch to EMERgency24. For more information on how to move your recently sold accounts, call the EMERgency24 Sales Department at 1-800-800-3624 today.
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