With General Electric Co. (NYSE:GE) nearing a sale of its GE Security Inc. unit to United Technologies Corp. (NYSE:UTX),
according to Bloomberg, it's worth drawing a contrast with another security unit that has recently made news in the deal world: the Stanley Security Solutions unit of Stanley Works (NYSE:SWK).
It seems clear that GE's hopes for the sector haven't panned out. Reports put the likely sale price for GE Security at around $1.8 billion, not that much more than the price of just one of the multiple deals GE made to build it: the
purchase of Edwards Systems Technology Inc. for $1.4 billion in 2004.
As we noted in a
previous post, others -- such as UTC and Honeywell International Inc. (NYSE:HON) -- have had better luck buying their way into security. One factor, we pointed out in an August The Deal Pipeline
piece (subscription required), may be the ability of those two companies to cross-sell to big customers via their HVAC and elevator (UTC) and building controls (Honeywell) businesses. GE has no such ability.
Stanley, much smaller than those three, offers another kind of contrast. Starting from its base in hand tools Stanley in 2002 paid $310 million for Best Lock Corp., which was in locks and electronic access. Adding other purchases (notably HSM Electronic Protection Services Inc. for $545 million in 2006) it went on to build a robust, service-oriented, recurring-revenue security business that accounted for 43% of profit last year.
It was the performance and potential of the security unit that put Stanley in the driver's seat when it announced its merger with Black & Decker Inc. (NYSE:BDK) earlier in November. Interestingly, the push into security began under then-CEO John Trani, hired away from GE in 1997 to turn Stanley around.
John Lundgren continued to build the business after taking over as Stanley's CEO in 2003. As he prepares to become CEO of Stanley Black & Decker, he says he's very committed to the sector, and why wouldn't he be?
Yet the B&D deal does steer Stanley back into the consumer/retail arena, reducing security's contribution to only about 25% of the new company's sales. That already has some folks speculating about unlocking the value of the $2 billion-sales unit. A Nov. 3 Raymond James research report endorsed the merger while also speculating that it increased the odds of a security sale or spinoff.
It should all add up to an eventful couple of years for the sprawling sector, which draws interest from all points on the compass; even Cisco Systems Inc. (NASDAQ:CSCO) has a presence.
Perhaps Lundgren will integrate B&D smoothly, use his increased clout in the consumer business to get the best of Home Depot Inc. (NYSE:HD) and return to the security acquisition trail in short order, building up its contribution to sales at Stanley B&D and pushing his company's multiple higher. One of the attractive things about the all-stock deal is that it doesn't require him to take on any debt.
But if hammers and saws are seen to be holding the SB&D security business back -- and if big, deep-pocketed companies like UTC remain on the prowl -- it wouldn't be surprising to hear investors clamoring for it to be cut loose. -
Kenneth Klee
Join Corporate Dealmaker's LinkedIn forum
Adele Gulfo
And the winners are...
