ACRE Acquires RS2, Explains Acquisition Strategy

By Brian Rhodes, Published Apr 19, 2019, 08:41am EDT

ACRE continues to buy, now acquiring RS2, just 5 months after buying Open Options.

Acre acquires RS2

One is a small access control manufacturer from Texas, the other is a small access control manufacturer from Indiana.

And ACRE already owns access control manufacturer Vanderbilt.

Why so many?

In this note, we share our findings from speaking with ACRE management and analyze the deal.

ACRE **** ******* ******* *******

*** *******'****** ******* ******** *** ** *** most ********** ******* ** the ****:

“*** *********** ** *** boosts ****’* ********* ** the ****** ******* ****** andprovides ** *** **** **** ** *** ***** in a highly competitive market with **** ********* ***** *** *** **** ****.” [Emphasis Ours]

** ***** ** ****'* brands, ** **** ********* a *** *** **** *******, ** ****** ******* of ******* ****, **** similar ********, ***** *** same ******* ******** ********, *** ********** ********* for *** **** *********.

Regional ***************

**** ***** **** ****'* *** *** ******, *** ********* ***'* market-share ** ********* ** the ******* **, *** was * ****** ** selecting *** ******* ** a *** ***** *** other **** ********** *******************,**** *******, *********.

****** ********* **** ***** none ** *** ****** are ******* ** ********** regions, **********'* ******** (***:******** ******) **** **** ********** centered ** *** **** Coast, *****-***** **** ******* is ********* ** *** South-Central **, *** *******-***** RS2's ******** ***** **** its *****-******* ******.

RS2 ********

***, ***** ** ******* south ** ******** *******, is ** ****** ******* offering ******* ***** ******* based ** ******** ** the **************** **! ********. ***'* ******** ******** of ************* ******** ******, ******* ** ******** ******* partner** *** **** **** as *********, ********, *** Open *******.

*** ***** ************** *** RS2 ** *** *******'* technical *** ***** *******, often ***** ** '**********' and '*******' ** *** ********** Access ********* ******* ** contrast ** ****** **** Lenel *** ***** ***** as *** ** *** worst in ***** **********.

*** ******* ****** ** independent ******* ** ****, after ******** *** *** Indiana-based ********** *** ***********.

*** ****, *** *** *** ****** ******* ******* Profile.

Will ****** ********** *******

**** ********* ** **** that **** ** *** intend ** **** ** RS2 **** ***** ****** brands, *** ******* ******** separate ******** **********. ****** said ***** *** '** plans' ** ******** *** company ** ******* ********* across **********.

** ********* ** ************* with ******* ********* ***** be ******** ** ******** with ***** **** ******, those ***** ** *********** on.

Acre '*** ******* ******* ******* ** ******** *****'

** ***** ****** ** ACRE's ******* *&* ******** was ** ******* *********** access ********* *** ****** them ** * **** access ************ ***** ** rival *** **** ** incumbents ******************* *****.

****** ******** **** ****, stating **** **** ***** to ******** '*********** ****** companies **** ****** ******' using ***** *** ********** brands *** ********.

RS2 ********* *******

** ***** ** *******, Grillo ****** '*** ** similar ** **** ** Open *******', ***** ******* IPVM ******** ~$** *******. In ***** ** ******* headcount, *** ******* ~** people.

***** ***** ******* **** not *****, ****** ********* that *** **** ****** Acre's ******* ******* '***** to $*** *******', ***** was ********* ** ~$*** million ****** *** ******** from ********** ******* ******** ******** Conference ************. **** ****** ***'* revenues ** *** $** - ** ******* *****.

Acre ********* *******

** ***** ** ******** coverage,**** ** ********* '** a ******* ******* *** growing ** ********* [********] industry **********, ********* ***** that *** **** *****'.

*** ******** *** ****** well, ******* ****** *** then ******* *** ******* *** * *********** ******.

**** ******* ** ***, Acre's ***** ****** ***** be ** ****** ****** and **** **** *** company.

** *******'* ***** *******, ****** ****** **** future *&* ******** ** ongoing: 
'**** **** ******** ** look *** ********* ************* to ***** *** ********* with *************, ****** ***********, acquisitions.”

Market ******

** ***** ** *** access ******, *** **** is ******** ** ** significantly ********** ** ****** RS2 ** *********** ** the **** ****.

*******, *** ******** ********* stability ****'* ******* ********, coupled **** * ****** of ***** ********** *** growth *** ******** *** RS2, * *********** ****** company ** * ****** now ****** *** *********** from '****' ******-******** ****** startups **** *************, ********.

****/****

Comments (12)

General questions: Is access control more significantly fragmented than video? I am not sure but it seems that way. And is access control, in the next decade, going to get significantly less fragmented?

ACRE's track record doing these things is strong so I am not so much questioning that but wondering when (if ever) does the access control market move beyond having regional access control manufacturers.

Is ACRE going to buy Matrix Systems next so they have one in Ohio? I am kidding, I think.

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I think this may change if ONVIF-A becomes common place. If access control panels start to receive standard commands from the software it removes the proprietary nature it has currently. When a lot of systems are built on the same board, you have to believe it can be migrated to standardization.

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I think this may change if ONVIF-A becomes common place.

That is not looking good. I just checked ONVIF's official directory for A conformance and there are only 3 manufacturers 2 years after release: Axis, Came Urbaco and TDSI.

Related: ONVIF Releases Profile A for Access

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Hopefully this is a good move. RS2 is an outstanding company. I have been a dealer for them in the past and RS2 was one of the best companies I have ever had to deal with, both pre and post sales. They have a longevity among employees as well and have been growing the past few years. 

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I'm positive on both this move and the Open Options move.  We are Open Options dealers, not RS2, but I do know a couple of folks there on the sales side.  I believe that both companies have a very loyal following due to their responsiveness and the ease of doing business with both.

I'm a firm believer that smaller private companies (compared to large, publicly-traded companies) can and consistently do move quicker and have better relationships with their customers as a result.

I recently chatted with Joe Grillo at the Open Options partner event at ISC West, and he mentioned that the longevity there really stood out to him.  For a 20-year old company to have a high percentage of employees that have over 10 years with the company is pretty impressive.  I would expect the same at RS2.

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Corporate play buying up your smaller competitors before your larger competitors do.  Bankroll their growth, build them up, then sell them at a high premium to a camera or VMS manufacturer who wants access control. 

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sell them at a high premium to a camera or VMS manufacturer who wants access control.

While I think ACRE can build them up, my question is: why don't those other companies buy these access control companies immediately? In other words, why didn't they outbid ACRE right now? I genuinely don't know. My best guess is that there are far fewer remaining video companies vs the myriad access ones left.

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why don't those other companies buy these access control companies immediately? In other words, why didn't they outbid ACRE right now?

I think it may be business logistics. I think it's harder to onboard and fold in a new business into your existing one, plus make it grow, than most people think. You travel on your own momentum after having developed your own business, but then trying to fold in another company risks breaking that momentum. Classic talked about example today: Pelco and Schneider.

If a video company is interested in an access company, they may just be waiting awhile to see who starts looking like a winning candidate. Yeah, waiting to see who comes out stronger may mean you pay a higher premium for the access company later than if you had bought it now, but even if they bought it now they'd still have to invest a significant amount of money to grow that business. So you're investing a lot either way.

I don't know if I am articulating myself in the best way. I'm just trying to make a case for one reason why a company might wait to buy a business later vs. now. That being to wait to see who comes out as the fittest.

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If a video company is interested in an access company, they may just be waiting awhile to see who starts looking like a winning candidate

I see the logic in that.

The part that seems less clear to me is that ACRE seems content to keep each company fairly regionalized. I would think most 'strategic' acquirers (like an existing video manufacturer) would want an access control provider with wider / broader market and name recognition.

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I think this is the interesting world that Mercury hardware gets us.  It's far easier to spec and install Open Options or RS2 (or any number of smaller players) because they use Mercury boards.  If they go out of business, it's not that big a deal because you now don't have to forklift out the entire system, you just need to change the head end.  That bit of insurance goes a long way to making those companies viable IMHO.  It would be much tougher if they used propitiatory hardware.

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Joe's strategy is finally starting to make sense.  It was always inscrutable, which I am sure, knowing Joe, was his intention.  Owning Mercury tied his hands in owning both a hardware manufacturer and several software companies.  Dropping Mercury for a nice profit (assumed) now gives him the freedom from conflict of interest.

As to keeping each company as a standalone, merging several distinct cultures is always a dangerous gamble, as I inherited in managing both WSE (Schlage Electronics) and Northern Computers, while President of Honeywell Access.  Diametrically opposed cultures, markets, and product lines.  Not by wisdom, but by necessity, I left them separate, and managed the narrow overlap.  It worked better than trying to have one overrun the other.

Joe's dilemma will be to grow all the businesses, since none are major players.  Do they compete for his mind-share until one outshines the other, gladiators to the death?  Or do they combine engineering resources and develop a similar code base with different look and feels?

The old Pittway was successful in fire alarms, buying Notifier, Firelite, Silent Knight, and System Sensor, and keeping every brand alive and growing.  More market shelf space, like 7 versions of Coca Cola.  So there is history of separate but equal working successfully.

Joe's challenge is to make all the acquisitions feel equal , or at least having a shot at his limited capital resources to grow.  Since all of his acquisitions ARE regionally diverse, this will be an interesting strategy to watch unfold.

I wish him best of luck and glad to see a mid-size holding company do acquisitions correctly.

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Dropping Mercury for a nice profit (assumed)

Related, Grillo confimed that in this video, calling it a 'really good return for all the shareholders':

That's a fascinating comparison, thanks for sharing:

The old Pittway was successful in fire alarms, buying Notifier, Firelite, Silent Knight, and System Sensor, and keeping every brand alive and growing. More market shelf space, like 7 versions of Coca Cola. So there is history of separate but equal working successfully.

 

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