NEW BRITAIN, Conn. — The Stanley Works announcement in December that it would acquire HSM Electronic Protection Services for a hefty $545 million in cash continues to attract a good deal of attention around the security industry.
New Britain, Conn.-based Stanley says the price is about 2.7 times HSM’s $200 million in annual sales and 60x its recurring monthly revenues (RMR). The deal, which is expected to close in early 2007, includes about $250 million in assumed debt.
“It looks like a very attractive deal from HSM’s point of view. Only time will tell whether it is equally appealing for Stanley Works,” says Jack Mallon, managing director of Mallon Associates, an investment bank in the security industry. “A transaction with a 60-multiple RMR is on the high side. We haven’t seen those deals since the late 1990s.”
Headquartered in Lisle, Ill., HSM, which has 50 offices and 175,000 customers, installs and monitors mainly commercial security systems.
HSM CEO Jim Covert partnered with an investment group to acquire Honeywell Security Monitoring from Honeywell Security for $315.5 million in May 2004. Stanley is planning to keep the HSM Electronic branding intact, according to a HSM representative.
HSM President and COO Tim Whall will join Stanley Works to help manage the newly formed Convergent Security Solutions business unit. Whall will report to Brett Bontrager, who currently serves as vice president of corporate business development for Stanley Works and will oversee the new business. The new security unit is expected to generate revenue of $600 million annually, according to a company statement.
While on paper Stanley looks to benefit strategically from the deal, Mallon said it would not be easily determined any time soon whether the deal pays off or not.
“Because it is part of such a large, complex, diversified company, it is going to be difficult to truly evaluate the deal,” he said. “I think that a part of it will be to watch the security piece of Stanley and see its overall profitability and growth.”