Hot Seat: Protection One Hangs for Sale Sign

Lawrence, Kan.-based Protection One Inc. is trying to secure a buyer, announcing recently it had tapped J.P. Morgan to explore strategic options. SSI spoke with Pro One CEO Richard Ginsburg at press time prior to the company entering a quiet period as it attempts to reach a definitive agreement on a deal. In 2004 Pro One sold its majority shares to private equity firm Quadrangle Group LLC from Westar Energy Corp. for nearly $140 million.

When do you expect to make a decision on the future of the company?
It will probably take anywhere from three to six months. We are going to see what indications of interest are out there and go back to our board and evaluate those and hopefully promptly decide on one of those. Or we may do nothing. We don’t have any pressures to do anything except to see if there is any way to get as much value as we can for our shareholders.

What prompted you to look at these “strategic alternatives”?
No.1, the capital in the market seems very strong. No. 2, the company has performed very well over the past year in light of the recession. And, No. 3, we recently firmed up our balance sheet and extended most of our debt maturities out a number of years, so we don’t have any pressure to do anything. Our balance sheet is in a good position. Those three factors, and we feel it’s much better timing right now than it has been in the past year or two.

Why else should Pro One be considered a ripe target for a sale?
I think the company has made great strides over the past six years. We built the commercial business from scratch to where it is today, which is over 100,000 customers. The company is in a very good position right now and it’s a good time to see what’s out there. It says a lot for what we accomplished in the business.

How did Protection One’s attrition and growth numbers look for 2009?
The attrition has been a little flat and a little bit better in some cities, which is very good. There was a lot of concern about what the recession would do to attrition and we were very pleased that our attrition really did not move much. It really shows the resiliency of the security industry, specifically the alarm monitoring business. And revenue, I would say the same thing, slightly flat. Cash flow did improve and we paid down a lot of debt in 2009. We rode out the recession by intentionally slowing down growth a little and paying down a lot of debt.

What do you believe are the most likely drivers of increasing residential alarm system penetration moving forward?
Technology is going to play an important part. We’re seeing customers adopt new technology. We have a product called eSecure that allows customers to remotely monitor their alarm system and receive real-time notifications of events and not be dependent upon any form of communication. It is completely wireless or can be done off an IP connection.

Residential video is starting to make some inroads after many years of not really doing anything. We’re the largest buyer of interactive services from Honeywell in the country and there’s a reason for that … we think consumers want new and innovative technology. Technology is going to continue to get better and we’re going to provide services for our customers that we never did before like letting them monitor video in real-time.

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