Protection One sells

Alarm monitoring company Protection One is being sold to Chicago-based private equity firm GTCR for $828 million, the companies announced Monday.

Protection One, which has headquarters in Lawrence, has said it employs more than 500 people in Wichita.

Protection One is publicly traded, but it is 60 percent owned by two private equity firms, Quadrangle Partners and Monarch Capital Partners.

Soon-to-be-CEO Tim Whall said on Monday that the sale will be painless for Wichita, although one expert said that could change in the future.

GTCR is interested in operating and expanding the company, rather than merging it with another alarm company and cutting jobs, Whall said.

GTCR likes the industry's steady growth and recurring revenue. It has owned alarm monitoring companies in the past, but it doesn't own one now.

"This is not about synergies," he said. "This will be stand-alone."

Whall will work from the Chicago area, although the Lawrence office will remain, he said.

Whall praised the company and the current executives, led by CEO Richard Ginsburg and chief financial officer Darius Nevin, for stabilizing the company.

Protection One was so weighted down with debt when Westar Energy spun it off in 2004 that many questioned its survival.

Since then, Protection One has improved operations, reduced customer turnover, reduced debt and made major acquisitions.

Today, the company is in its strongest position in a decade, company officials have said.

"Really, we plan to expand on what the team has been doing and expand the market share," Whall said.

No one from Protection One could be reached for comment.

Down the line

Alarm monitoring will continue to be a slow growing industry in the future, an industry expert said.

Investors really only make a good return when companies merge and cut overhead, said Jack Mallon of Mallon Associates, an investment bank for the security industry.

He said GTCR's interest in Protection One is to build it up and sell it.

The industry continues to consolidate. Industry leader ADT is in the midst of buying the No. 2 company, Broadview Security.

With the soon-to-be-completed merger of the two largest players, Protection One will become the nation's second-largest alarm company with 2009 revenue of $368.0 million.

With Protection One on the verge of growth again, it might become an attractive acquisition.

GTCR previously owned two alarm companies. It sold HSM to the Stanley Works in 2007 and Cambridge Protection Industries to ADT in 2001. Whall ran both for GTCR.

That's the probable future for Protection One, Mallon said.

"What they get out of it is they fatten it up, make a few acquisitions and spin it off to ADT," he said. "At the end of the day, they'll all be owned by ADT."

Fair price

GTCR will make the formal offer on May 3 to acquire all of the outstanding common stock of Protection One for $15.50 a share.

That's 118 percent above the $7.10 stock price on Jan. 19, the day before the company announced that it was searching for a buyer.

Protection One, which is traded on the Nasdaq, closed Monday at $15.44. That's up $1.68, or 12 percent, from Friday's close.

The sale price is about the going rate in the industry, said Mallon, about 30 to 40 times monthly recurring revenue. In 2009, Protection One had $25 million a month in recurring revenues.

The sale price also includes refinancing of the company's $436 million in long-term debt.

GTCR, with more than $8 billion in capital, owns a range of companies, from one that manages employee assistance programs to one that owns Casper the Friendly Ghost.