James M. Covert reached the pinnacle of his storied career when Tyco Int’l Ltd. paid him an astonish
What do Bill Gates, George Lucas, Hugh Hefner, Oprah Winfey and Phil Jackson have in common? Each one of them embodies the American Dream. They all possess the drive and dedication to excel at whatever they set their sights on. James M. Covert deserves inclusion on such a list. In the security industry, few, if any, individuals have matched his entrepreneurial spirit and business savvy.
With humble beginnings stretching back to small-town Illinois, the determined Covert would eventually prove himself time and time again in a number of different arenas, culminating in the building of a $1 billion electronic security power. Among his many impressive achievements and claims to fame, Covert is also the cousin of actor brothers Dick and Jerry Van Dyke and once handled security for the Los Angeles Dodgers.
Most recently, Covert sold Cambridge and all its interests, including SecurityLink and National Alarm Computer Center (NACC), to Tyco Int’l Ltd. (parent company of ADT Security Services Inc.) for a whopping $1 billion. The deal again calls for Covert to refrain from starting any security companies in North America for three years.
Security Sales recently sat down with the aptly named Covert for an exclusive interview. This conversation with one of the most amazing businessmen to ever toil in our industry took place less than 24 hours after Tyco’s purchase was finalized.
Security Sales: You certainly have had an amazing career. As you look back some 30 years, what was it like working for the White House during Watergate?
James M. Covert: From my perspective, Nixon was by far and away the best of the presidents to work for. He took great care of his staff and was a very forceful person. A lot of what has been written about him and his family just isn’t true. None of the bad talk ever came from anyone who really worked with him. I used to have tea with him after events, and to watch the family get ripped apart by Watergate was very difficult for all of us to witness. A lot of Nixon’s staffers let him down and he tried to protect them more than maybe he should have. I was called to testify at the senate subcommittee hearings, but Nixon invoked Executive Privilege and we were rushed away. Nixon remained calm and in control right up until the last day. I believe that, in some ways, those experiences shaped who I am today.SS: After you left the Secret Service, how did you become involved in the electronic security industry?
JC: I was doing some security work for Los Angeles Dodgers Owner Peter O’Malley, who introduced me to Stewart Resnick, owner of API Alarm Systems in California. He asked me to become operations manager. I decided that I wanted to be a key participant in whatever I did. Therefore, I took a step back in pay and stature to learn a new business. I actually signed the first million-dollar deal with Radionics to convert to digital dialers, which, ultimately, financially saved that company. At the time, it was so controversial because there was this belief that if you converted your customers to digital, they could use other providers. I was also fighting for us to complete residential acquisitions, which were viewed as not being worth it at the time. I placed API on the cutting edge of industry change.SS: Why did you move to the Midwest and how did you become involved with SecurityLink?
JC: API had developed so much control in Southern California that we had to find a new marketplace. So, we looked at the Chicago area and purchased Holmes Protection. I moved to Chicago to head up that acquisition. We then purchased several other companies before Resnick purchased the Franklin Mint, moved to Philadelphia to run it and decided to sell off the Chicago-based assets. I wanted to buy those assets, but was not allowed to as an employee of the company. Finally, Jim McKenzie and myself left and went to work for Sonitrol Management Co., which allowed me to then bid on and acquire all of API’s assets east of the Mississippi River. I then formed SecurityLink Midwest, not to be confused with the other SecurityLink in Orange, Conn. We bought the latter’s Philadelphia and Florida assets when the company went bankrupt in 1991. In 1994, Ameritech came to me and offered to buy SecurityLink; we sold it later that year on Christmas Eve. SS: You stayed on as president and CEO of SecurityLink by Ameritech for the next couple of years. Why did SecurityLink falter?
JC: Ameritech had a dream of bundling services to its customers, but it was locked into a five-state region. Ameritech was limited by deregulation and most of its strategy turned out to be flawed thinking. Ameritech ended up having exceptionally high cancellation rates. It was a hard lesson that there is a big difference between a noncompetitive and a competitive industry.SS: Why did you leave Ameritech? Had the relationship soured?
JC: I left in 1996 because I was given the impossible task of integrating new acquisitions into the company without being allowed to participate in the acquisition process. I was just told to run whatever management decided to buy. They were playing up my Secret Service background, while stripping me of my authority. Ameritech was shocked because, for the money I was being paid and the fact that I would have to sign a three-year no-compete clause for North America, they never thought I would actually leave. SS: How did you end up going to the other side of the world and starting up a new company in a foreign environment?
JC: I told Les Gold [an industry attorney] to go to Australia and New Zealand and see if there was anything down there to buy. He did his homework and found Securitas, which was owned by an individual who wanted to sell the company and its $800,000 of recurring monthly revenue (RMR). I still had some money from selling SecurityLink and found some other investors and bought Securitas on March 14, 1997. SS: While you were Down Under, Ameritech was taken over by SBC Communications Inc. You returned to the U.S. and formed Cambridge Protection Industries. Can you explain what transpired?
JC: I came back to America when my no-compete clause ended on Dec. 1, 1999 and formed Cambridge. We did our first acquisition by buying the five companies that were owned by MidAmerican Energy, which had $500,000 of RMR, in April 2000. We then bought some other interests, including National Alarm Computer Center (NACC), a central monitoring station based in Irvine, Calif. All the success we had and money we made from Cambridge allowed us to pursue SecurityLink, funding all of that for us. We were very fortunate.SS: SBC lost $103 million running SecurityLink in 2000. What made you believe you could turn it around, and how did you manage to pull it off?
JC: There were several things to me about SecurityLink that obviously needed to be changed. Its cancellation rate was 30 percent on systems it was practically giving away. There were too many salespeople selling zero-down or mass-marketed systems, so we got rid of them. We cut our losses right away by immediately cutting our mass-marketing efforts. We did, however, keep the salespeople who were handling high-end commercial sales.
We also eliminated the dealer program, which had a 25-percent cancellation rate. We did all of this in Day One. We then expanded our collections staff by 150 people and, from February to July , we collected, on average, $11.3 million more per month than our expenses. I just took advantage of what we got.
SS: You were riding an incredible hot streak when Tyco made you an offer for Cambridge Protection Industries and all of its companies. What made you decide to sell?
JC: My thought was that, if someone offered me $1 bill
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