Security Director News Top Stories

Round two: Will the TSA finally get its administrator?

Tue, 9 Mar 2010 00:00:00 CST

WASHINGTON—On March 8, Secretary Napolitano announced the nomination of retired Army Major Gen. Robert A. Harding to lead the Transportation Security Administration, a post that has been vacant since Jan. 20, 2009.
"The TSA administrator is among the most important, unfilled posts in the Obama administration," said Napolitano, as reported by CNN. "The president and I both believe that Gen. Harding has the experience and perspective to make a real difference in carrying out the mission of this agency."
"If there were ever a nominee that warranted expedited, and detailed, consideration in the Senate, this is it," she said.
Harding retired from the Army in 2001 after 33 years of military service, according to the White House. He served as deputy to the Army's chief of intelligence and, previously, served as director for operations in the Defense Intelligence Agency. In 2003, he founded a defense and intelligence contracting firm, Harding Security Associates, which employs more than 400 people. Harding currently serves on the boards of directors of the Wolf Trap Foundation for the Performing Arts and the Association of Former Intelligence Officers.
His experience in the intelligence community is particularly noteworthy, as the TSA has been largely criticized for its inability to use intelligence information to prevent attacks such as the attempted Christmas day bomber.
“Aviation will benefit from General Harding’s extensive career in intelligence. Airports have long advocated that intelligence must be the cornerstone of effective aviation security. After confirmation by the Senate, the airport industry and ACI-NA look forward to working with him in our ongoing effort to ensure the safety and security of the traveling public,” said Greg Principato, president of the Airports Council International-North America.
However, one of the primary hurdles for the previous nominee, Erroll Southers, in receiving confirmation was his alleged support for granting TSA employees collective bargaining rights. Although Southers also raised concern when allegations arose that he misused his power after conducting an unwarranted background check on his ex-wife’s boyfriend, it was largely issues of union rights that likely led to his withdrawal.
The debate about whether or not TSA employees should be granted collective bargaining rights will likely be an issue for Harding as well. “No matter who the next TSA administrator is the issue of full rights for TSOs at the nation’s airports is not going away,” said AFGE National President John Gage in a statement. “AFGE is stepping up its grassroots efforts to have Congress pass House Bill 1881 before the Easter recess, thereby taking the question of collective bargaining out of the hands of the administrator altogether.”
At the end of February, AFGE filed a representation petition with the Federal Labor Relations Authority calling for a union election for TSOs nationwide. The petition, which speaks only to the question concerning representation by a union, is seen as one of two parallel tracks the union has been involved in to win collective bargaining and union representation for the 40,000-person Transportation Security Administration.
Senate Majority Leader Harry Reid urged swift confirmation for Harding, reported CNN. "This nomination should not be subject to partisan delay tactics," Reid said. The leaders of the Senate Commerce and Homeland Security committees, which will hold hearings on the nomination, also pledged to move quickly on Harding.

Nike strives to improve LP

Tue, 9 Mar 2010 00:00:00 CST

BEAVERTON, Ore.—With its 450 specialty stores and more than 1,000 partner stores around the world, large corporations like Nike are always looking for ways to improve their loss prevention program.
Bill Turner, director, asset protection, risk and control at Nike Global Retail said Nike has experienced far below average shrink numbers, year after year, which he attributes to focusing loss prevention efforts on training employees. “We’ve been spending a lot of time perfecting our program based on deterrents and training and awareness,” he said. But, he foresees the use of technology becoming more of a prominent part of Nike’s LP program, especially in these challenging economic times. “People are expensive, travel is expensive and we always say we’re trying to be present without being present and I think all retailers are in the same boat trying to figure out how to get the message across and control assets and do all those things without adding a lot of headcount and travel.”
The evolution of video surveillance has presented the ability for retailers to remotely view stores, something Turner said will become more of a prominent part of Nike’s LP efforts. While Turner said that he thinks this technology still needs time to develop before its mass implementation, he sees a lot of potential. “It is a technology that the sky is the limit with remote view and the ability for alarm companies using IP-technology cameras to provide visibility in physical stores, which wasn’t possible before. It’s coming and it’s coming quick and the technology is changing so fast.”
Nike hasn’t historically been an early adopter and has taken a “stair step approach” to migrating to such solutions. “When I got here seven years ago, we had virtually nothing,” he said. “We had tapes and VCR equipment attached to cameras and we slowly graduated to DVRs and added a little more and remote view is now something we are looking at.”
One of the partners that Nike is considering working with is Iverify, a video monitoring company that is currently certifying all its associates in LP-specific monitoring techniques. Iverify has partnered with the Loss Prevention Foundation to certify its associates as LPQualified, which will improve their ability to identify retail-specific threats.
“When monitoring from an LP standpoint, we look for key theft indicators such as a shopping cart full of merchandise or an individual acting suspicious and picking up lots of items or removing tags,” said Angela Hardison, EVP of operations and human resources at Iverify. “They’re looking at those types of behaviors that indicate theft and if necessary we have the ability to intervene with audio and video and prevent theft from happening.”
In addition, Iverify can offer retail clients open-and-closing escorts to ensure the safety of its employees. Hardison said Iverify began focusing its business specifically on retail loss prevention last year and is starting the LP certification process for approximately 200 of its associates.
Improving education and awareness on the monitoring end meshes with Nike’s approach to LP, said Turner. “Solution providers, if they understand our business and how we do it, they’re going to be better off and with Iverify, one thing they hang their hat on, is saying that they want their people to understand their client’s business,” he said. “My philosophy has been that if you don’t understand the business you’re in and you don’t understand how retail ticks, then you don’t have the knowledge to plug the hole that causes shrinkage and loss.”
However, despite having a strong loss prevention program in place and looking for even more ways to improve loss, success isn’t always a good thing. While it obviously reduces the company’s financial loss and improves the bottom line, it doesn’t exactly make for a good case to boost the LP budget. “One of our ongoing challenges is that sometimes success is not your friend,” he said. “The hardest thing to do is gain momentum in an LP program at a high level when you don’t have a problem—but that’s a good problem to have.”

Millions in Olympic-used surveillance equipment to be auctioned off

Tue, 9 Mar 2010 00:00:00 CST

VANCOUVER—Now that the Paralympic games are wrapping up, Honeywell Building Solutions is beginning the final stage of its $30 million security contract with the Royal Canadian Mounted Police here: the removal of all the equipment that’s been installed to protect the 18 Olympic venues. But what to do with the roughly 1,300 Panasonic IP cameras, Computar lenses, 4,000 Xtralis PIRs, etc.?
Well, Honeywell’s going to sell them off, of course, using auctioneers GoIndustry DoveBid, the largest item disposition house in the world, the result of a merger between Dove Bid and Go Industry. According to vice president Chris Register, the Honeywell sell-off will actually be a “private treaty” rather than a traditional auction, which means end users and integrators can negotiate prices on pieces of the lot and the entire lot needn’t be purchased by a single individual.
“It’s like a liquidation,” said Register. “We’ll be calling our clients and we’re doing a global marketing campaign and companies that are interested in the equipment can come and gauge what they want ... We want to deal with a lot of end users and maybe dealers who have clients that they know are at a certain price point that we need to get to ... They can get a nice discount on buying it new.”
While he’s still unsure whether the warranty remains on the products, Register said everything has been repacked in bubble wrap in the original packaging and the equipment is all “like new.”
While he wouldn’t put an estimated value on the entire package, he said Honeywell probably paid roughly $8 to $10 million for the equipment as a whole. “I’d like to get as much as possible for my client,” he said. “It’s all about who’s interested and what they’re willing to pay. If we see a ton of interest we may want to put this into a competitive bid situation, maybe 200 units at a time or something.”
There is no end date for the sale because Register said he didn’t want everyone to wait until the last minute. “It’s first come, first served,” he said.
Interested parties can visit http://www.go-dove.com/event-14127/Honeywell_-_Security_Cameras.

One of the largest biometric manufacturers for sale?

Tue, 9 Mar 2010 00:00:00 CST

STAMFORD, Conn.—Biometric giant L-1 Identity Solutions made its potential sale official March 2, when it announced that it has hired Goldman Sachs and Stone Key partners to explore its strategic alternatives.
Why sell now? Bob LaPenta, CEO and the largest single shareholder of the company, having invested $100 million of his own money, reiterated that he’s said all along that when 2010 arrived, the company would assess its position.
Asked if there were other reasons for exploring alternatives, Jay Beaghan, managing director for Imperial Capital said, “I think Bob’s being transparent in a good way. I think he’s telling The Street what he’s doing,” Beaghan said.
Being completely straight with shareholders is not always a CEO forte, but in this case, “he’s being straightforward,” Beaghan said, noting that LaPenta is “not an insignificant shareholder.”
Beaghan has in-depth knowledge of this market and L-1 in particular. A security technology banker for 20 years, Beaghan has a specialty in identity solutions investment banking; he advised on several of L-1's transactions as the company was put together through mergers and acquisitions of companies such as Viisage, Identix and Digimarc.
The potential sale of the company was first publicly talked about during a Jan. 6 investor call. Summarizing L-1’s strategic goals and objectives for 2010, LaPenta said the company wanted to “perform on programs in backlog, win new domestic and international program and explore strategic alternatives to enhance shareholder value.”
Asked about whether a possible sale was “a board decision or a general statement” during the investor call, LaPenta said: “Those of you that are familiar with this company and the journey we’ve been on for the past three years are familiar with the fact that I always said that we wanted to build a great company and I really believe we’ve done that. I also said that as management, and that includes the Board, we have a responsibility to enhance and make sure that we’re providing value to our shareholders.”
LaPenta noted that when he began putting the company together through acquisition several years ago, “I said that when 2010 came that was a line I had drawn on the sand and 2010 is here. What that means exactly, I’ll leave to your interpretation, but I think it’s a self-explanatory statement.”
Final 2009 revenue for the company is expected to be $650 million, down from the previously anticipated range of $670-$680 million. Adjusted EBITDA is expected to be between $95 million and $97 million. L-1 expected to end 2009 with $1.3 billion backlog. It expects 2010 revenue to be $750 and $775 million and adjusted EBITDA to be $110 to $120 million.
LaPenta said the company is “highly regarded, that has franchises in a number of areas, credentialing, enrollment. We have a nice intel business and a very, very impressive biometrics business. I think our vision in putting this company together in this particular space was visionary. And I think it’s a valuable property.”
Noting that he’s invested $100 million of his own money, he added, “I don’t have any margins. And that investment does not include any options. It’s all my money. I worked hard with my team. I’m a big shareholder. And I expect that this company that we built should be valued appropriately.”
So who will buy?
“It’s textbook stuff,” said Beaghan. “A joint venture partner could come forward, an M&A partner could come forward, it could be a group,” he said.
There doesn’t seem to be any question in Beaghan’s mind that a buyer of some sort will emerge. “It’s an interesting business and it will be of interest to a number of people who come from different perspectives.”
Would the best way to enhance shareholder value be to spin off parts of the company or sell it as a whole? LaPenta refused to speculate when asked that question.

Former Cisco director aims to improve integration

Tue, 2 Mar 2010 00:00:00 CST

CARLSBAD, Calif.—Most security professionals aren’t IT wizards. While it is imperative for security to have an understanding of technology, it is absolutely critical to know that when those new technologies are installed, they will interface with existing systems. Otherwise, that could prove to be a costly investment.
Unless, of course, you don’t want them to integrate together. Major Jay Gruber, assistant chief of police and assistant direct of public safety for the University of Maryland, is charged with securing the campus with various forms of technology. The university has more than 600 cameras, 300 of which are actively monitored, and a separate access control system. But Gruber said he has no interest in bringing these systems together. “We don’t do a lot of integration and like to get best of breed in every product that we get,” he said. The companies they use for video surveillance, for example, do not provide access control solutions, so those systems remain separate.
Integrating disparate systems can seem like a risky and time-consuming endeavor for many security professionals, said Bill Jacobs, who spent 15 years as the director of physical security and integrated building technologies for Cisco Systems. “At the beginning of my career, the very first problem that presented itself to me was: How am I going to manage multiple systems around the globe?” he said. Trying to bring those disparate systems together can be a huge headache for security professionals, requiring an IT department to “write drivers and try to patch things together to bring combined solutions together,” he said. More issues can arise when upgrades are necessary for one system, but those upgrades impact the operation of the other system.
It is this apprehension to integrate that Jacobs, and a team of other security professionals, are attempting to address. Jacobs is now vice president of access control for Next Level Security Systems, a brand-new company that will be launching a “gateway” product designed to bring disparate systems in a unified, networked solution, at ISC West later this month.
“We decided to take a look at developing a unified solution, one that brings to the market a product built that not only has an access control component but also provides video solutions and audio components and video analytic components – all within the same unified gateway, so they’re not piecing together solutions that may or may not fit,” he said.
While the company is targeting small-to-medium size organizations, those that likely need the most assistance in integration, Jacobs said the scope of the product is not restricted. “We’re not limited by the quantity of cameras or doors and can actually build out a full, global enterprise solution,” he said.
Jacobs said that he is anxious to move to the manufacturing side of the industry after years as an end user and consultant. “What’s exciting for me is to be on the forefront of another frontier of hosted solutions and cloud-based computing and in an area where there’s a lot of growth and I’m glad to be here,” he said. But he said it’s his past experience that makes him such an asset to this new company: “There’s a lot of good technology out there and companies building good widgets and gadgets, but I bring the end user perspective into this so we can have solution that an operations manager and security manager can look at and feel comfortable with.”

License plate recognition to be regulated in Maine

Tue, 2 Mar 2010 00:00:00 CST

AUGUSTA, Maine—The Maine Legislature’s Joint Transportation Committee has moved forward a bill this week that would set statewide policy for the use of license plate recognition technology. As part of LD 1561, “An Act to Regulate the Use of Traffic Surveillance Cameras,” LPR data would have to be purged after 21 days, unless actively being used in the investigation of a crime, and only law enforcement, Department of Transportation, and toll booth entities would be allowed to employ the technology in the state of Maine.
Maine would become only the second state to regulate LPR use. New Hampshire passed a far-reaching bill in 2007 that bans the use of any surveillance technologies on a public way, including everything from red light cameras to LPR technology.
The bill was triggered when the South Portland Police Department began using the technology last year. They say it is a force multiplier and allows them to simply do in an automated fashion what they already do manually: run license plates through their system, looking for matches with wanted criminals or those who might be driving with suspended licenses. The Maine Civil Liberties Union and Transportation Committee Chair Sen. Dennis Damon (D—District 28) sought to ban the use of the technology altogether, however, citing privacy concerns. In testimony before the committee, for example, MCLU head Shenna Bellows cited Supreme Court Justice Louis Brandeis’ famous “right to be let alone—the most comprehensive of rights and the right most valued by civilized men.” She then said, “Mainers cherish our right to be left alone by the government—to think, say, and do what we want as long as we are not hurting our neighbors or breaking the law. ALPRs, like all surveillance, threaten those fundamental privacy rights.”
Eventually, a compromise was reached, allowing only for law enforcement and other limited use, and with the 21-day limit on storage.
“Basically, it took about six hours of work sessions to come up with the final draft,” said Rep. Edward Mazurek (D—Rockland). “It was a lot of give and take. The initial bill was to really limit the systems quite a bit; then the sponsor [Sen. Damon] modified it to 21 days and things along that line, which made it a lot more acceptable to both sides.” The committee heard testimony that most other law enforcement agencies keep data for 30 days, for example, and so the 21 days figure was a compromise between Sen. Damon’s desire of just one day of storage and the 30-day benchmark.
Rep. William Browne (R—Vassalboro), ranking minority member on the committee, was happy with the compromise when reached for comment, though he said, “I thought [the South Portland Police Department] had enough checks and balances so that the system wouldn’t have been misused. And there are so many times now when we’re checked—I’m not as concerned with the Big Brother issue as other people are. I felt comfortable with the way they were going to use it.”
When asked whether he understood that security companies, for example, could lose business tied to access control and parking control, where LPR is often used in commercial applications, Browne said his committee had not considered that aspect of what they were doing. “That wasn’t even mentioned,” he said. “I would think that’s something that could affect their businesses. I can understand that. I can check up on that.”
He did mention, however, that part of the bill calls for a working group to be created, should the bill pass, that would examine how the technology is being used and whether the bill should be altered next year.
When asked if he thought the working group might consider commercial applications, Rep. Mazurek said, “I can’t speak for the whole committee, but I would say right now, probably not ... We want to make sure that this thing is used properly and not just indiscriminately.”
Rob Garrigan, VP of operations, ELSAG North America, a maker of LPR technology designed specifically for law enforcement, has been watching the Maine Legislature closely. He said it’s important that states do set policy and understand how the technology can best be used, but that, in general, once they see the technology’s value they find ways to use it appropriately. “One of the very real results of having that data,” he said, “is that it leads to convictions, often where the crime involved loss of life or property.” Those driving with suspended licenses, he noted, are three times more likely to be involved in a fatal accident, and this technology helps keep those people off the road, he said.
Garrigan said there are more than 300 agencies in New York alone using ELSAG’s technology, and more than 600 agencies around the country, so it’s not quite in the early adopter stage anymore. “Having said that,” he continued, “in New England, it’s just getting started. There’s a recognition of the technology, both aiding in officer safety and getting the suspended registrations and the like off the road.” Because officers can keep their eyes on the road, instead of scanning for license plates, he argued, the officers can be more focused on driving and not getting injured in accidents.
“It’s a tried and true technology,” he said, “but there are still places like Maine where it needs to be looked at and reviewed and polices put in place.”

High-def in the classroom

Tue, 2 Mar 2010 00:00:00 CST

LONG BRANCH, N.J.—When the Long Branch Public Schools decided to upgrade its video surveillance system, they didn’t want to simply see what was happening, they wanted to see exactly who was doing what. “We wanted to be able to see everyone in our football stadium,” said Joseph Ferraina, superintendent at Long Branch Public Schools. “We kept hearing problems with this and problems with that and the solution we were looking for we wanted to look into the crowd and pick people out and identify them.”
The school invested in a high-definition surveillance system, installing between five and 16 megapixel video cameras at each of its five schools. In addition, it installed 10 HD network video recorders, allowing it to store up to two months worth of video.
While this type of high-quality surveillance may not be typical for secondary school districts, it’s becoming more and more common said Dave Tynan, vice president of global sales and marketing at Avigilon, which provided the video solution. “When HD first came to TV with instant replay providing exact details to settle disputes, allowing them to zoom in on someone’s shoestring over the line – the same thing is occurring in the surveillance world where organizations like schools have moved to video surveillance as a validation tool,” he said. “Now the principal has indisputable replay of events and activities and they don’t have to spend two weeks and 20 interviews talking to students and investigating.”
The video surveillance system has brought security to a new level, he said. “Right now we’re at the best level of school safety than ever before,” said Ferraina. “At this point in time I can access buildings from anywhere and can look in every classroom and hallway and parking lot.”
Installing cameras in hallways and entrances was important, but it was also critical to have them inside the classrooms. “It’s a fantastic use of cameras when we have a parent who makes allegation that a teacher pushed a student and we can tell when and where and look at the camera,” he said. “By having cameras in classrooms we are better able to protect staff at a higher level.”
But teachers were not immediately receptive to having cameras watching them. “They thought we would be evaluating and observing them through the cameras, but we set their minds at ease that we’re not evaluating, it’s there to protect.”
While the surveillance system was primarily installed to protect students and deter crime, Ferraina said it has had other monetary benefits. “During the recent snow storms we had to send out work to a company and realized that they billed for more trucks than they had on site,” he said. “We were able to save money and use it for monitoring someone on location; we can see if they spent two-and-one-half hours on site and if they were there or not.”
Ferraina attributes being able to put in such a powerful system to the hard work of his IT department. “My IT people were on fire about it and they knew where we wanted to go with it and they carried the ball and put the plan in place,” he said.
And while the system is largely in place as a deterrent factor to protect students and staff, it is critical the school be protected via video surveillance. “With all the different threats of today, we don’t want to have the experience of having to put cameras in after an incident,” he said.

Pivot3 closes $25m in new funding

Tue, 2 Mar 2010 00:00:00 CST

PALO ALTO, Calif.—Pivot3, purveyors of IP SAN storage offering “serverless computing,” has closed on a fourth funding round of $25 million. Perhaps more notable than the money is the round’s lead investor, Focus Ventures, which has in the past funded storage companies EqualLogic (acquired by Dell) and Isilon (IPO). Their experience in the market, said Pivot3 co-founder Lee Caswell, has already opened new doors for the company—quite literally: Some former EqualLogic employees have joined Pivot3 and opened a Tokyo office, thanks to connections made through Focus.
“It’s kind of that instant access to channels of distribution, particularly outside the United States,” said Caswell, “that can get us in and connected really fast. They don’t like debugging a product. It has to be proven in the field, mature, so that it’s just a question of applying dollars to the sales side to scale it out.”
Pivot3’s last round came in 2008, when Mesirow Financial Capital Partners led a $24 million round, but Caswell said the company is in a different place now.
Pivot3 is reporting that it tripled its revenue in 2009, doubled its sales force, and did all that without any sales outside of the United States. Further, a recent IMS Research report named Pivot3 as the market leader in the IP SAN portion of the video surveillance storage market, and predicted year over year growth for that segment of the market of 60 percent. As the company aims for an eventual IPO, Caswell said Pivot3 was able to attract funding because its current revenue and stability makes it a relatively safe bet, but the market growth and its status in that market offers investors like Focus a potential big score.
And if you’re thinking $25 million is a big number for a fourth round in the video surveillance market, you’re not wrong to wonder if there’s something to look at there. Part of the round will go toward beta testing Pivot3 solutions for other, non-surveillance markets. “Up till now, if people asked if they could use our storage for something else, we’ve said, ‘no,’” said Caswell. “We’ve focused on surveillance. But now we’re going to add some resources to open up some other opportunities, so there will be a beta through the summer time frame and then we’ll announce the market we’re going into in the fall.”

University partners with city to expand monitoring capabilities

Tue, 2 Mar 2010 00:00:00 CST

COLLEGE PARK, Md.—The College Park city council voted on Feb. 23 to install 15 security cameras in the highest crime area of its downtown, but it won’t be monitoring those cameras. Instead, the University of Maryland will take on that task.
“We have agreed to monitor those cameras pro bono because we have a vested interest because our staff and students are living and working in the city,” said Major Jay Gruber, assistant chief of police and assistant direct of public safety for the University of Maryland. But this isn’t the first time the city has taken on a leadership role in the city. As a matter of fact, the university police department makes up the majority of the law enforcement presence in the city. “The city of College Park has no police department, so we share jurisdiction in a large portion of the city with the county police,” he said.
The university operations center actively monitors approximately 300 cameras, but has a total of 600 on its one-and-one-half square-mile campus, said Gruber. While adding 15 more to its active monitoring schedule should not be an onerous task, if the city continues to add more cameras in the future the university will have to begin charging a monitoring fee.
In addition to the cameras, four license plate readers will be installed downtown, and also monitored by the university’s surveillance operation center. License plate readers have been the most effective surveillance technology deployed by the university, said Gruber. The university has installed 17 license plate readers at all its entrances and exits. “They are a godsend and we’ve solved more crimes than you would believe,” he said. “Regular video is good and we do forensic reviews mostly with it, but the tag cameras have solved our biggest crimes like assault and theft.”
But the journey to deploy these advanced technologies has been arduous. “We started out small with 20 cameras in 1995 and have been adding cameras all the time in various locations where the university had crime problems and we now have a state-of-the-art system to monitor them,” he said.
The university continues to evaluate new technologies that will help protect its staff and students, but Gruber, who is a 25-year veteran of the department, said they never jump into anything. “You just have to be patient and look at the technology out there and make sure it’s a good fit for you,” he said. For example, video analytics has the potential to be very beneficial for monitoring the growing number of cameras, but Gruber said they aren’t ready to make any investments yet. “We’ve done a lot of research and looking at analytics and we’re not happy with what we’ve seen so we haven’t jumped at it,” he said.
A big part of that deliberate decision making is, of course, funding. “We’ve had to draw some lines in the sand and realize we can’t have the latest and greatest of everything,” he said. But having strong infrastructure in place has made deploying most of these technologies possible. “We’ve been lucky because we have fiber and we’ve hung our hats on using fiber.” But Gruber recognizes that fiber isn’t going to be everywhere they need it to be. Therefore, he’s also been evaluating wireless mesh networks. “Off campus there is no fiber, so we’ve struggled about how to monitor those cameras. We’ve talked to other jurisdictions and are happy with what we’ve seen so far.”

UTC buys GE Security

Tue, 2 Mar 2010 00:00:00 CST

HARTFORD, Conn.—United Technologies Corp. announced March 1 it closed on its agreement to purchase the GE Security business from GE. United Technologies has sold $2.25 billion in debt in order to raise money for the acquisition.
Bill Polk, managing director at investment bank CapitalSource, said the terms of the deal—$1.25 billion of 10-year notes priced to yield 87 basis points over comparable U.S. Treasuries and $1.0 billion of 30-year bonds priced to yield 109 basis points more than U.S. Treasuries—are “extraordinarily cheap capital against what a typical buyout firm has to pay.”
For example, a 30-year treasury bond is priced today to yield 4.58 percent, so the UTC note would be priced to yield 5.67 percent. Ten year notes are currently priced to yield 3.64 percent. The UTC notes would yield 4.51 percent.
Considering that UTC reported $4.5 billion in cash on hand in its last filing, it could be said that the company doesn’t need the capital being raised to make the GE Security acquisition.
This may indicate, Polk said, that a company like UTC, which has a strong balance sheet and cash on hand, has access to capital that private equity firms and leveraged buyout groups do not have, and thus “you’ll see in the acquisitions a heavy weighting toward these strategic buyers.” Private equity “doesn’t have anywhere near the same access to debt that they had in 2006, or early 2007. It’s improved a lot in the last 12 months, but it’s still not where they were.” It could also be that UTC has more acquisitions lined up for the near future and doesn’t want to deplete its cash reserves.
The underwriters for the issue are Banc of America Securities LLC, BNP Paribas Securities Corp., Citigroup Global Markets Inc., Deutsche Bank Securities Inc., Goldman, Sachs & Co., HSBC Securities (USA) Inc., J.P. Morgan Securities Inc. and RBS Securities Inc. Each underwriter, through its representatives, Banc of America Securities LLC and Citigroup Global Markets Inc., has severally agreed to purchase from the company the principal amount of notes.
But what about the idea that bigger deals are harder to put together in this environment? “This is a global syndication,” said Polk, “the investors in this debt are money market funds, institutional investors that aren’t going to be playing in smaller middle market transactions. It’s different. It’s not fair to compare this to a security alarm company that’s raising $50 million or $100 million dollars.”
Does this say anything about the security industry as a whole, that this much debt would be bought to fund a security company acquisition? “It says broadly that security is generally perceived relative to other industries as a safer port in the storm, but it’s more evident of the fact that companies like UTC have greater access to the capital markets as large corporate strategics.”