Former Security Networks CEO Discusses New Opportunities

When news broke that Monitronics had acquired West Palm Beach, Fla.-based Security Networks for a whopping $507 million, many wondered what would become of its founder and CEO, Richard Perry.

The question is a valid one as Perry has made quite an impact since entering the industry more than 25 years ago. In 1991 he started Digital Detection Systems (DDS) in Orlando, Fla. The company, a licensee for Sears, moved into multiple markets and merged with SLP Capital in the late ’90s. Perry, who became managing partner and director at SLP Capital, sold DDS to ADT in 2000.

In that same year, Perry started Security Networks, which private equity firm Oak Hill Capital acquired in 2010 for an undisclosed amount. In its 13-year history, Security Networks became the 14th largest security firm in the nation. When it was sold to Monitronics, the company boasted more than 325 employees, 200,000 customers and was tracking toward  revenue exceeding $100 million.

With all that he’s accomplished, will this latest transaction coax Perry’s exit from the electronic security industry? Read on to find out what his plans are for the future in this exclusive interview.

With Security Networks being so successful, why did you decide to sell to Monitronics?

Richard Perry: Well, I had a private equity partner, Oak Hill Capital. When you have private equity, there is always a transaction on the horizon somewhere because they invest in growing companies. They were my partners for just over three years, so we did end up doing a transaction probably a little sooner than we would have predicted.

From our side, we saw that while we could have held the company for a couple more years and continued to grow at a dramatic rate, we felt like the stars lined up for us. The debt markets were very favorable at the time. Capital markets, in general, the stock prices of a public company in our industry, were turning in high multiples.

What’s next for you?

It’s exciting to have a clean slate, having stepped out of Security Networks and turning it over to Monitronics. I’m looking for new opportunities and trying to find that right niche to be in to take the next step in the business. I’m coming out of a very successful partnership with Oak Hill Capital, so we certainly also have an interest in working together again and looking for another opportunity together to make another acquisition. That’s one avenue that certainly I’ll be pursuing.

Speaking of acquisitions, what makes a company attractive in your eyes?

Is it large enough to be attractive for my private equity sponsor and me? Is there growth potential? We’re looking for a business that has good prospects for growth and businesses that can scale up and get good operational efficiencies as you grow. Also, one that maybe has a technological advantage would certainly be another attribute that would be nice.

If I see a business that I view as a diamond in the rough — a business that maybe isn’t growing as much as it should or maybe has some issues with its operations but has the potential through good management and good marketing to improve on those metrics — that would be an opportunity I’d probably look for. But there are some businesses that have built-in issues that are baked into the business.

For example, if you have a company that has been creating customers with poor underwriting and poor credit criteria over a number of years, and therefore has high attrition, that’s harder to fix because you can’t repair the customer base overnight. You have to look at the history of the company and what issues do they have and are they fixable. I would shy away from companies where I feel like there is no opportunity for improvement.

Are you interested in creating another start-up company?

I certainly am not opposed to doing a third start-up.

How difficult is to create a start-up? What steps do you take?

It certainly takes guts, and you have to have a good business plan. You have to feel like it’s doable and try not to have rose-colored glasses on. The first start up I did, I was much younger and much poorer. With the first company I started, I took two mortgages on my house to start it. In those situations, you really better be focused because failure is certainly not an option.

I think with any start-up, it’s about having the capital to execute it because I have found that whatever you predict you’re going to need, it’s going to take four times that. You’re always going to hit unexpected bumps in the road and you have to be able to weather them. That’s why I think, so many start-ups fail because the entrepreneur is overly rosy in his projections and doesn’t factor in all the black swans he’s going to run across. Hopefully, that’s something I get with wisdom and age and having been through it a couple of times. I’ve probably made all the mistakes, so hopefully the third one, if I do it, I would be able to anticipate those things and make sure that we plan for them.

Can you put into perspective the increasing need for security dealers to expand their portfolios to include IP-based services?

At Security Networks, we made it one of our top priorities to push in that direction. In fact, we were pushing the manufacturers to move more quickly towards IP-based solutions because I saw the obvious benefits of it, and I think our industry is slow to change. We were stuck on a digital dialer for 20-some years, but this new technology, I feel like it’s moving quickly and for those who don’t embrace it are going to end up finding themselves obsolete.

I think our industry is finally catching up to that and it’s opening up a whole new world in terms of services. The key is to build value with the customer. In our industry, we’ve always been sort of afraid to interact with our customers because we’re afraid that they’re going to cancel their service because we’ve had this sort of passive relationship where you hang up a security system on the wall, and you don’t know how much value the customer will find in it. You want your customer using that system every day and you want it to be something that they can’t live without. And then, if that happens, that changes the attrition curves; it changes everything. That’s the Holy Grail.

When do you think that you may enter back into the industry?

It’s hard to say. I prefer to think of it as I never left. I’m here; I’m going to be attending conferences just like the ones that I generally have been involved with. I’ll be attending the trade shows. So the question really is more at what point will I get involved in a specific transaction or a specific position? It’s really hard to predict. I think that’s really just going to be opportunity driven. It can happen overnight; it may take a year. It’s just a question of looking at the landscape, looking at opportunities and then taking advantage when the right thing comes along.

Ashley Willis | Associate Editor

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