United Technologies Corp. (UTC) has agreed to acquire General Electric Co.’s fire detection and security business for $1.82 billion.
“This acquisition enhances UTC Fire & Security’s status as a leading franchise in the $100 billion global fire safety and electronic security industry,” UTC CEO Louis Chenevert said in a statement. “It strengthens our North American footprint, extends our capabilities and complements our existing fire and security businesses.”
UTC built its Fire & Security unit earlier this decade with purchases of Lenel Systems Int’l Inc., an access control and software developer; Chubb, a fire safety and security services business; Kidde, a British fire and safety company; and Red Hawk, which installs, integrates and services a range of security technology products and solutions.
Last year, Chenevert promoted Ari Bousbib as president of the Fire & Security unit, along with UTC’s Otis and Carrier commercial divisions. During a Webcast of the Citi Industrial Manufacturing & Transportation Conference on Thursday, Bousbib emphasized the company’s strategy of offering service contracts for commercial building systems, thereby locking in future revenue streams.
“Our strategy is to build a new equipment service model,” Bousbib said during the Webcast. “We are going to take this business and develop an aftermarket.”
UTC said it expects the transaction to be earnings neutral in 2010, due to restructuring and transaction costs, but will likely generate growth in 2011 and beyond. A closing date was not provided.
For GE, the sale advances the company’s efforts to shed noncore assets and focus on its core strategic businesses. In April, GE sold a majority stake in GE Security’s homeland protection business to Paris-based Safran SA.
GE first entered the electronic security industry in late 2001 with the acquisition of Interlogix, which itself was created from the merger of Interactive Technologies Inc. (ITI) and SLC Technologies in 2000. Several noteworthy acquisitions followed, including InVision Technologies Inc. and the $1.4 billion purchase of fire-prevention equipment maker Edwards Systems Technology from SPX Corp. in 2005.
Ultimately, GE failed to realize a central strategic idea of where they wanted to take the security business, Walter Bailey, CEO and managing director of New York-based The EpiGroup, an investment banking and research firm covering the security industry, tells SSI.
“In the classic GE model, many of their acquisitions looked to add incremental products off of which they could drive service and maintenance revenue,” Bailey says. “They did not meet with very much success integrating the majority of those acquisitions. As such the service and maintenance revenues never really appeared.”
Bailey says the acquisition “is a good marriage” that will especially bolster UTC’s U.S. business with increased channel penetration in both commercial and noncommercial markets. “UTC has not had the market penetration here in the U.S. that they needed in order to really make the Chub platform sing. GE gives them a lot of lift here.”
Frank (Skip) Haight, vice president of marketing for Danbury, Conn.-based ComNet Communication Networks, tells SSI that despite GE’s vision to one day dominate the security industry, the global conglomerate never was able to divine a line of attack to make it a reality.
“The security industry had always been made up of hundreds of smaller and medium-sized companies that brought value and confidence to those who put security systems together,” Haight says. “When they combined many successful individual companies under the GE Security umbrella, they weren’t able to retain that value and confidence, and the GE culture couldn’t improve on it.”
GE Security Pro dealers reached by SSI say they have not been contacted by UTC or GE Security about the acquisition, which was first rumored in late August.
Tim Burdick, president of Burdick’s Security Inc. in Seattle, acknowledged the dealer program is “in limbo,” although he’s not in a rush to give up on it because of the success he’s had in selling iconic-branded equipment.
Other dealers say the program needs to be revamped regardless, and UTC could offer a fresh start.
“There’s a lot of speculation that this could be a good thing because GE has fallen short on service and product development,” says Art Beaver, CEO of Security Systems of America in Pittsburgh. “It could get much better with proper marketing and product development.”
For more insight behind GE’s shortcomings, check out SSI Editor-in-Chief Scott Goldfine’s “Under Surveillance” blog.