GTCR Golder Rauner returned to the security space with the $315.5 million acquisition of Honeywell International’s Security Monitoring business. The transaction is expected to close in June.
“We’ve had involvement in this space that goes back almost a decade,” GTCR Senior Principal Collin Roche said. “And this company is very commercially oriented with a very high level of customer service, which is important in this industry.”
The sale of the security monitoring unit was not unexpected, as Honeywell identified the business as a divestiture candidate last year. The sale price, at $315.5 million, represents roughly 2x the unit’s $160 million in revenue from fiscal 2003, and approximately 7.5x its EBITDA, which came in at the low $40 million level, according to sources.
The security monitoring space is estimated to be a $30 million market worldwide. The Honeywell unit competes primarily with three other U.S. players, including market leader ADT, as well as Protection One and Brinks Home. However, ADT, a unit of Tyco International, gained much of its muscle in the roughly $1 billion acquisition of Cambridge Protection Industries, formerly of portfolio company of GTCR’s seventh fund. Through that investment, a success by all accounts, Tyco paid five times GTCR’s original investment in the company.
In the acquisition of the Honeywell unit, GTCR will finance the transaction with a senior credit facility from Merrill Lynch Capital and mezzanine tranche provided by TCW Mezzanine.
Roche noted that the auction for the unit was dominated primarily by strategic bidders, but added that GTCR was not at a disadvantage given its standing as a financial buyer. “In general, we tend to pursue deals strategically, and given our experience in and around this industry, we anticipate building this business for the long term, so we approached the bidding as more than a purely financial transaction.”
To grow the business, GTCR will borrow from its Cambridge blueprint, and will build the company with select add-on deals. To spur organic growth, the firm will focus on bolstering the sales team, while exploring the possible expansion of the company’s product line and geographic coverage.
GTCR also anticipates strength in the real estate market to bode well the security monitoring industry. Roche said, “The trend in home ownership is positive for this industry, and more broadly, the technology continues to improve, allowing us to continually upgrade the equipment and services that can be provided.”
GTCR will use equity from its recently closed, $1.8 billion GTCR Fund VIII for the transaction.
Buyer: GTCR Golder Rauner
Target: Honeywell Security Monitoring
Seller: Honeywell International
Purchase Price: $315.5M
Advisor: J.P. Morgan Chase
Legal Counsel: GTCR: Kirkland & Ellis; HON: Oppenheimer Wolff & Donnelly LLP