The March issue of SECURITY SALES & INTEGRATION includes my exclusive and in-depth interview with Mark VanDover, president of the newly rebranded Tyco Integrated Security (formerly ADT Commercial Security). To gain a more balanced perspective on the VanDover and TycoIS, I again turned to some of my most trusted industry advisors and analysts. Following is what Bill Bozeman, president and CEO of Westminster, Colo.-based PSA Security Network; Les Gold, counsel with Los Angeles-based Mitchell, Silberberg & Knupp; Sandy Jones, principal of Chardon, Ohio-based Sandra Jones & Co.; and Jeff Kessler, managing director at L.A.’ Imperial Capital had to say. Be sure to also check out the two bonus blog posts from my lengthy discussion with VanDover.
What is your impression of TycoIS President Mark VanDover in general and specifically as leader of TycoIS?
Sandy Jones: Mark VanDover has the talent and experience needed to succeed quickly as he has a deep understanding of the U.S. security market, and significant experience in growing and managing systems integration businesses. You may think I am stating the obvious but it must not be obvious as we have often seen companies bring in talented leaders who lacked experience either in the U.S. market or who had achieved their success in manufacturing. I support bringing in talent from outside the industry but not without them having success managing and growing a customer installation and service business.
Jeff Kessler: He did an excellent job running the Tyco Safety products division, which incorporated an extremely diverse portfolio of perimeter, access control, fire suppression, video and anti-theft technologies. The acquisition of Visonic provided a needed technology upgrade to Tyco and ADT’s communications technologies.
Why do you believe the business unit name was changed to TycoIS, was it to gain distance for some reason to the ADT brand name? What advantages and disadvantages in the marketplace do you see with this move?
Bill Bozeman: It seems logical that as part of the deal [Tyco recently splitting its operations into three new and separate publicly traded businesses], both entities could not use the same name. When it comes to branding, ADT has the stronger name specific to security. Tyco is a well-known name but not nearly as powerful as the ADT brand in security.
Les Gold: It is my understanding that Tyco really wants to grow and since a great portion of their original business remains with ADT, I assume they are going to be very competitive to gain back market share. So every large security company involved in the high end commercial and industrial business, including integration, access control, CCTV, etc., will be affected by the new, more aggressive Tyco. I also believe they will become far more aggressive in the M&A marketplace.
Jones: One of the goals of the split was to create stockholder value and keeping the ADT name with the residential monitoring business made the most sense as it will ultimately increase the value of this division. We believe in the not-so-distant future the residential monitoring business may be sold, perhaps to a telecom or cable company, and the ADT brand will influence and increase the valuation. TycoIS represents several companies including ADT commercial and Simplex/Grinnell, so TycoIS is logical and while not as well-known as the ADT brand it is well known to investors who will help drive awareness and business exes who are their target buyers.
Kessler: Tyco will sell products to ADT, but may also compete with them in the “gray” area of small businesses around 7,500 square feet. In a few years, ADT may be able to sell into larger facilities, so the need to separate remains clear. ADT has the best recognized brand in security in the U.S., but the Tyco name has been increasingly used in large projects over the last half-decade and it increasingly needed its own identity. There is a definite movement we see in the industry to separate residential and small business, from government, enterprise and national accounts.
In what specific areas of the commercial security industry do you believe TycoIS has the greatest strategic or competitive advantage and why? Conversely, what do you see as their weaknesses or Achilles’ heels?
Bozeman: This may sound a bit odd but I believe their biggest advantage is their marketing might. It does not hurt to have primetime television commercials promoted with a well-known athlete. They also have a strong geographic network of branch offices that will help win regional and national accounts. I do not see Tyco as having a technology advantage as compared to the top-notch independent integrators as the independents have the passion of ownership that is difficult for large companies to duplicate.
Gold: Tyco has been in the high-end security market for many years, serving heavy industry and the large commercial and industrial market. They know the territory and will continue to use their skill. In those areas where they have provided good service, they will continue to get referrals. If they have stubbed their toe, that will be their Achilles’ heel. As for the resources and synergies behind Tyco, I don`t think that will present any particular advantage as the companies they have been and will be competing against will have the same strategic and financial resources backing them. The only real additional competitor in my opinion will ultimately be ADT itself, when the noncompete expires.
Jones: Their greatest advantage is in the area of national accounts. They have the experience and capabilities of providing worldwide coverage. Their challenge will be meeting customer expectations with consistent installation and service across all their offices.
Kessler: I would turn the question around and look at the scope of what TycoIS has done under its previous head, John Kenning, and now under VanDover. The company is purposefully becoming highly selective with the quality, margin and vertical markets it will take on. Like a very few smaller, successful companies, TycoIS has had the luxury of walking away from potential contracts it does not believe serves its own and its shareholders interests. This cannot be said for most of the next five or six integrators who have seen our long-forecasted margin compression in installation and products. There is a group of smaller integrators who have figured out how to become trusted “business process partners” with tremendous stickiness and higher gross margins than their larger cousins. We believe TycoIS is further down this road than most of its large competitors, both here and abroad. There are very smart people who have joined large worldwide firms like Schneider Electric and Diebold in their smaller, but growing security businesses. There are several smaller to medium sized integrators like Interface, Dakota, Northland, Aronson, Intelligent Access Systems, ASG and Convergint, who have the “IT IQ” to get to a potential client first without bids, or to nip away when there is a bidding process for a potentially long-term, rewarding relationship.
In what ways does TycoIS benefit from having the resources and synergies of Tyco Corporate behind it? Do you see any downsides?
Jones: The synergies with corporate give them the ability to influence future products. Many manufactures don’t have a direct relationship with customers so their products and service offerings don’t necessarily meet market needs. That is a problem we solve for other suppliers through our research and consulting. In the case of TycoIS, they have an advantage because they can leverage their relationships and couple it with their V.P. of Product Management Jay Hauhn’s technology knowledge to develop an exceptional product roadmap. The downside may be meeting corporate expectations, which can sometimes be focused on short-term reporting vs. long-term growth.
Kessler: The financial wherewithal that allows TycoIS to be selective with jobs and margins, its greater ability to scale and spread costs over a larger base are all advantages. There has been some handwringing in the industry over the Products division’s direct sales to Tyco, ADT and the like. However, VanDover has explained that the channel, integrators and dealers, remains by far the largest end-user base.
Which competitors ought to be most concerned about TycoIS and why?
Bozeman: There are some end users who are very risk adverse and only consider the large security integrators when making the final decision. Consequently, I see Stanley, Red Hawk, Kratos and the other larger security players feeling Tyco’s impact the most.
Kessler: Any integrator, small or large, that believes its geographical or vertical or historical ties to some client will allow it to continue to win business as the customer value proposition in integrator goes up and commodity pricing goes down, is a potential loser to TycoIS.
What do you see as the top challenges for TycoIS leadership?
Bozeman: Keeping high quality standards and consistency in the branch offices. Another challenge will be recruiting and keeping ‘A’ players.
Jones: First off, like many systems integrators who started in the physical space, they need continue to invest in developing their IT IQ. Secondly is providing consistently dependable service across the U.S.; not all branches have the same level of competency. Lastly, is getting ADT commercial and Simplex/Grinnell salespeople to work together vs. compete against one another. While ownership has changed, long-held competitive traditions may be hard to overcome.
Kessler: The company is going through a process of cutting growth for the sake of higher quality, more technology-oriented or as we call it “IT IQ,” stickier, and higher margin jobs in the face of a flat market. This has caused a flat installation picture, offset by slightly higher pricing. The challenge is to both continue to get better pricing and more sticky, technological installations while reigniting decent single-digit growth. We do not believe that the IT integrators have the desire to deal the fewer standards-based integrations, the provisioning, the day-to-day physical-logical monitoring, etc. However, this is not to say that a Cisco will never partner with or combine with a smart physical security integrator if it appears that margins in this industry are stabilizing and relationships with customers are lengthening.