Arecont Files Ch.11, Agrees To Sell To Turnaround Specialist

By: John Honovich, Published on May 14, 2018

The long-anticipated sale of Arecont Vision is finally happening. After raising $80 million in debt in 2014, a failed sale in 2017 and the resigning / ouster of Arecont's founders a month ago, Arecont has filed Chapter 11 to restructure its debts [link no longer available], having reached an agreement to sell the company to a turnaround specialist.

In this note, we examine the founder's significant mistakes that created this situation, Arecont's sharp decline in revenue, and how the planned sale could help the company stabilize and potentially recover.

What **** *****

*******'* ******** ****** ******** chances ** ****, ****** out ******* **** ** 2014 ** **** **** could *** *********. ******* a *********** ** ******* to *** ****-**** ******* problems *** *** **** of *** *******, *******'* revenue ******** **% ** 2017. ******* ** ****, Arecont *** ** ****** able ** *** ***** debts *** **** * buyer **** ***** *** them ****** ** ***** what **** ***** (***** $73+ *******).

What *** - ********** **********

** *** ******** **** for *******, ******* *** agreed ** **** ** Turnspire ******* [**** ** longer *********], * ******* that *********** ** ******* around ********* *** *** such ********. *** **** is **** **** **** enable **** ** *** their *********, ***** ********* creditors, ********* *** **** loan ******* *** ******* them *******/****** ** **** themselves ******.

Bidding ******* - ********* *** ******** *** ***

** **** ** *** Chapter ** **************, ********* to **** **** *** company's ********* ** *** back *** **** ****, there **** ** * bid ******* *** ****** who ***** ** ********** in *******. *******, ***** an ********** ****** ******* contacted **** *** ********* bidders ** *** **** month, ** ** ********, though ********, **** ** outsider ***** ***** ******.

* ******* *****, ******* ****** **** ***, ** ******** ***** the ****** ******* ******** for ******* ******, ********** difficult ** *** ******* trade ***********.

Source *********

******* ******* ****** ******** LLC, ** **. ****** Website*** ****** ********* ** the ******* ** ******, with**** ******** ********* ********* details****** ******* ** ******** showing * **** ** debtors *** ****** *******.

Revenue **** **** $** ******* ** $** *******

*******'* ******* **** **** $72 ******* ** **** to $** ******* ** 2017, * **** ** over **% **** **** year. ******* ******* ********* revenue ******** ***** ****, when ******* *** **** $64 ******* ******** [**** no ****** *********]. **** that * **** ****** (2011 - ****), ***** net ******* ****** *** ~12%, *** ***** **** the ******** *******.

Owe $**+ *******

*** ******* **** ******* owes $**+ *******:

**** ** ****** ******** for ***** ************ *************, as **** **** *** unnecessary ** **** **********, used ********* ** *** benefit ** *** ******** and ************.

Key *********

*** ****** **** ********** a ****** ** *** brand ******* *********:

*******, *** ****** ** all ** ***** ******** are *******, *.*., ***:**** ****** ******* ******* Out ** ******

Blame ****** ** ******* + **** ******

*** ******* ***** *** primary ***** ** *** Chinese *** *** *** chip ********* (*********** ** Arecont's **** ********):

** ******* *** ******* significant******** ** ******.

Blame ** ******* *** ********* ******

***** *** **** ** Chinese ************* *********** *** impacted ***** ******* ************, the ********* ******* ************* (such ** ********* **** Axis *** ********) **** continued ** **** ******* that. ** ********, *******, who *********** **** ****** as ********** *** ***** experience ******,****,***********, **** **** *** big ******** *** (*** ousted) ******* ********** ******* to **** ** *********, offering ******* *******.

More ***** ** *** **** ****

*** ******** *** ******* to ***** *** *** 2014 **** ***** *** no ********** *********** *******, as *** ****** ****** explains:

******* **** ****, **** if *** *** ***** mistakes **** ****, ***** would **** **** ** need ** *** ******** or ** ****** ** pay **** $** ******* even ** *** *******'* revenue ******* **%. **** is *** *********** ******* of ****** **** ****.

Headcount ****** **%

** *** **** ****, Arecont *** *** *** headcount ****** **% ** reduce *****:

Founders ****** ***

***** *** *********, *** 'settlement' ****** *********** ***, ** ***** reported **** *****:

For **** - *** ******* *********

**** *** **** *****, Arecont's ****** ******* ******* to *** *******:

Arecont ******* ****** ** *******

***** *********** *********** *** users *** *****, ******* finally ********** ******. *** market ** ***** *** video ************ *** ******* had **********, **** *************, and **** **********. *** fact **** **** ***** not **** *** ***** their ******** ** ***** own *****. ********* **********, ****** **** ****, have ** *** ** blame *** **********.

Future - ****** **** ******

*** **** **** *** Arecont ** **** ******* the ******** **** ** clear *** ** ****-********* that **** *** ** addressed *** ***** (******, the ******** *** ******* being *** ** **** the ******). *** *********, though, ** **** ******* 11 ************** *** ****** to ** ****** ** a ********** ********** **** them ** *** ********* and ********* *********.

** **** ********** **** as *** ******* ******** in *** **** *** months *** ****** **** the **** ** *********.

Poll / ****

Comments (32)

Undisclosed Manufacturer #1

05/14/18 04:48pm

To Arecont's credit, they gave the industry excitement in megapixel resolution and multi-imager solutions. Both are now widely available and less expensive.

Then they took that huge business advantage, along with being "American Made" and drove a fatal customer service/quality control stake through its heart, over and over again.

What could they possibly release that could equal either of those?

John Honovich

IPVM | In reply to Undisclosed Manufacturer #1 | 05/14/18 04:50pm

Then they took that huge business advantage, along with being "American Made" and drove a fatal customer service/quality control stake through its heart, over and over again.

GIF? :)

What could they possibly release that could equal either of those?

In their current state, nothing. That's a little bit like asking a man with 2 broken legs to run a marathon. The more practical question is can they get themselves to walk again. If they could do that, then they consider running but they still need to prove the basics.

Undisclosed #2

In reply to John Honovich | 05/14/18 04:55pm

The more practical question is can they get themselves to walk again.

Very true. Meanwhile their competitors mastered "walking" a decade ago, and are now on to running marathons... They will have a lot of catching up to do.

Undisclosed Manufacturer #1

In reply to John Honovich | 05/14/18 05:04pm

Here's an age old question from a parent to a child and it applies here.

"How do you plan to rebuild the trust I gave you and you threw away? What can you do to show me I can trust you again?"

People inevitably want to have trust in their children, I don't think it's the same with a manufacturer. What could they do to make you want to take the risk again?

Lifetime warranty?

Nope, I can't afford to keep returning stuff and who says you will be here after a lifetime. Besides, you went Chapter already.

Lower cost?

Well, the off shore guys have that mastered. It's a little late to drag that horse out of the barn.

Name recognition?

(see above)

I know, merge with Vicon!

Oh, that was tried too :)

Undisclosed #2

05/14/18 05:34pm

From the press release:

LOS ANGELES, CA, UNITED STATES, May 14, 2018 /EINPresswire.com/ -- Arecont Vision®, the industry leader in IP-based megapixel camera and video surveillance solutions...

"Industry leader" and "bankruptcy filing" are an odd combination. Maybe it is just me, but when companies issue press releases where they try to proclaim themselves as the "leaders" in things like this, it makes me think they are anything but "leaders".

Stop doing this. Nobody cares that you think you are the leader is some contorted category, particularly when it is easy to see from the content in the rest of the release that you are anything but a "leader". (I am saying this not just to Arecont).

Undisclosed Distributor #3

In reply to Undisclosed #2 | 05/14/18 08:34pm

And title of that same PR is really amazing:

Arecont Vision LLC To Execute Asset Purchase Agreement With An Affiliate Of Turnspire Capital Partners, LLC To Shed Debt Burden Through Chapter 11 Sale; Operations And Customer Service To Continue Uninterrupted While Company Enters a New Phase of Growth

I do hope that this optimism materializes though.

Undisclosed Manufacturer #1

In reply to Undisclosed Distributor #3 | 05/14/18 11:02pm

How will this affect existing product warranties? I mean, it's not like they fail at all, but just in case?

John Honovich

IPVM | In reply to Undisclosed Manufacturer #1 | 05/14/18 11:38pm

The company is not going out of business. It has an agreement of sale in place. So I would expect warranties to be honored.

What happens longer term is, of course, a much bigger question, not just to warranties, but the company generally.

Undisclosed Integrator #6

In reply to Undisclosed #2 | 05/15/18 03:30pm

Leader in IP-based megapixel cameras....how? I have to imagine Hikvision and Axis dwarf the amount of IP megapixel camera sales in any of their models. They were a leader over a decade ago, they've done nothing but fumble and ruin a good product since.

Tom Sharples

05/14/18 06:15pm

Unless the "made in USA" aspect somehow becomes a dominant factor over and above common sense, these guys are toast. Maybe the brand name and some of their designs can be applied by Hikvision to a line of cameras made there. Too bad. They have had a number of chances to fix this including a close friend of mine who they had considered as engineering VP 4-5 years ago but ended up not hiring. This is what happens when you want to keep all the marbles for yourself and have an NIH attitude.

John Honovich

IPVM | 05/14/18 09:15pm

I added a new section on the 2014 loan as I think it is important to appreciate its role in leading to this situation:

The founders are further to blame for the 2014 loan which had no productive operational purpose, as the filing itself explains:

Without that loan, even if all the other mistakes were made, there would have been no need to pay interest or be forced to pay back $73 million even if the company's revenue dropped 40%. That is the fundamental benefit of equity over debt.

Undisclosed Manufacturer #1

In reply to John Honovich | 05/14/18 09:28pm

I wonder how the bankruptcy court will view that loan?

Fabian Muyawa

LONTECH SYSTEMS
IPVMU Certified | 05/14/18 09:36pm

I remember purchasing some cameras from Arecont constituting 180 degrees and 360 degrees which were intended for outdoor installation. Unfortunately, the package came with wrong wrong brackets which costed us time and money to ship back for the replacement. How knows! could be human error but, costly any way.

Again the performance of the multi image sensor cams appeared to be unstable coupled with unsatisfactory Tech Support. I think a lot required to be fixed.

John Honovich

IPVM | 05/14/18 10:21pm

Scott Schafer was ousted as EVP of Arecont last October (2017). With today's Arecont chapter 11 filing and the possibility that Schafer uses this as an excuse (i.e., that he was gone before this happen), this is to make clear Schafer's responsibility.

Contrary to his LinkedIn description:

(1) As the bankruptcy filing itself shows Arecont was already in trouble while Schafer was still completing 'his assignment':

(2) Revenue fell 40% in 2017 and by the time Schafer was ousted in October 2017, Arecont well knew their deep problems:

(3) Schafer was the public face and head of Sales, Marketing, Service and Quality. His tactic, over and over again, was to pretend that everything was great.

For years, anytime integrators complained on IPVM about Arecont's quality, Schafer offered some excuse (user error or old news or people just were against them). The man simply could not take responsibility.

A month before Schafer was ousted, at ASIS, in the midst of rep firms and employees resigning or being let go left and right, Schafer was all happy talk. Things are great, blah, blah, blah.

Best summing up Schafer is how he handled IPVM's report on Arecont Getting Kicked Out of Google:

Schafer is now selling consulting services to security companies. Be warned.

Note: I plan to make this a discussion later to highlight on its own.

NOTICE: This comment has been moved to its own discussion: Scott Schafer Responsibility In The Fall Of Arecont

Jon Dillabaugh

Pro Focus LLC
In reply to John Honovich | 05/15/18 01:08pm

Clearly he has infinite knowledge on what NOT to do, so there’s value there.

;)

Undisclosed #5

In reply to John Honovich | 05/15/18 02:32pm

Mental note: Don't lie or try to bluff your way past John Honovich. It just doesn't seem to work out so well for people. Kind of like running away from Mike Wallace! ;-)

John Honovich

IPVM | In reply to Undisclosed #5 | 05/15/18 03:05pm

In all seriousness, I routinely tell executives when they first talk to me that I have no objection to them giving me 'no comment' on any issue they think is sensitive but lying to me is not prudent. Sometimes I know immediately that a company is lying, simply because we have enough good sources or primary information that contradicts the company. Others, I will find out the truth not that much longer after. And, when that does happen, I am not shy about calling it out. Moreover, industry people tend to be more accepting of mistakes than coverups, so protecting one's reputation for truthfulness is important.

Undisclosed #5

In reply to John Honovich | 05/15/18 03:15pm

And you guys aren't the run of the mill PR friendly trade mag that will publish anything without really questioning it. And I agree, this industry more than others is heavily based on ones reputation. If you burn that, you might as well go do something else.

Undisclosed Manufacturer #1

In reply to John Honovich | 05/15/18 03:24pm

IPVM also does “off the record” really well, which is why they are trusted.

Undisclosed #4

IPVMU Certified | 05/15/18 07:21am

Can’t say I’m surprised ;)

Undisclosed #2

05/15/18 12:55pm

Curiously (or not), Raul Calderon has not been named CEO in this, he is still COO. It seems probable that Arecont will get a new CEO soon. The problem then is that they will likely find a "turnaround expert" CEO from outside the security industry, which makes it unlikely that Arecont resurfaces as any kind of dominant player.

Their recent moves of OEMing OpenEye's cloud VMS and cheap low-end Chinese hardware are not laying the groundwork for a strong return.

I would wager that Arecont ultimately gets sold off to some other company within the next year or two. They may make some motions around revamping their product line with new multi-imagers that use more current technology (e.g. not some FPGA-based approach) and other things, but I do not see them having the runway (financially, reputationally or otherwise) to truly turn the company around into a stand-alone entity.

Too bad, I will really miss the free drinks in their booth at trade shows.

Larry Tracy

05/15/18 08:36pm

Nice work on laying this out John.

What is the history in the video business of turning around sick businesses ?

John Honovich

IPVM | In reply to Larry Tracy | 05/15/18 08:56pm

What is the history in the video business of turning around sick businesses?

Good question. I have not examined that aspect systematically but generally speaking (examples like IQinVision, Vicon, 3VR, DM, Intransa, etc. off the top of my head), the odds are against it.

There are a few positives that might help:

Getting rid of bad management is key. You can't recover if the people who caused the problems are still in charge. On this point, Arecont has hope, though the argument is whether it is too late.
Arecont only went bankrupt because of this incredibly imprudent and operationally unnecessary debt raise. Things are bad but not as bad as operationally as they are financially because of the 2014 debt move. The bankruptcy clears the bad debt out.

Any company, in this position, the odds are against them. But if Turnspire gets the employees and suppliers paid and gives Arecont enough runaway to stabilize, I think they can survive.

Undisclosed Manufacturer #1

In reply to John Honovich | 05/15/18 09:13pm

Wouldn't a close comparison be Vicon?

Large name brand leader who made several mistakes and pays the price.

Vicon adds a successful industry leader to try to turn it around from Milestone.

At best, they still have an unstable cardiac rhythm awaiting either a pacemaker or coffin.

John Honovich

IPVM | In reply to Undisclosed Manufacturer #1 | 05/15/18 09:34pm

Vicon missed on IP.

Arecont has IP, has MP, has multi-imager, has repositionable multi-imagers. The product portfolio is fine. The quality issues. The service issues. Those are the problems.

Undisclosed Manufacturer #7

In reply to John Honovich | 05/15/18 11:10pm

I would argue that both Arecont, and Vicon nee IQinVision got caught in the same trap of not being able to adapt or even comprehend the changing market.

Arecont's portfolio is tired, dated, and can't make people yawn fast enough.

Multi-Imager IP is a dime a dozen, and almost all credible players have a strong showing now.

More of "that" isn't going to save them. And yes, we agree that the quality and service must be fixed.

They need a complete reboot, and fortunately this seems to be what they're attempting to do.

Arecont and IQinVision deserved the cowardly deaths they have received.

Arguably, IQ didn't go bankrupt, but a dying snake eating a dead rat (Vicon's "Merger" with IQ) is a reasonable facsimile thereof.

Everyone predicted this. Hubris works as a short term strategy, but there was nothing to back up either company when new technology came along.

Both companies ignored their loyal customer's cries for help. Both paid dearly for it. Their shareholders paid dearly for it.

Their customers moved on to something else... time will tell if they return.

Personally, I'm hopeful.

Of all the folks in this industry that can pull this off, it is Raul.

Undisclosed Manufacturer #1

In reply to Undisclosed Manufacturer #7 | 05/15/18 11:32pm

I recall another issue with Vicon and correctional facilities beyond old tech.

They had several good VAR’s that specified the work but eventually as private prisons grew and design build contracts were awarded, more parts were sold to the contractors than VAR’s.

Managing channels became an issue for them, as well as Vertical BD guys competing with Regionals.

Undisclosed Integrator #8

05/16/18 07:26am

With them moving assembly more to Asia, is this going to hurt their opportunities with installs that have Buy American and similar procurement requirements that gave them an advantage?

Undisclosed #2

05/16/18 08:28pm

And now Arecont has some new debt :)

Arecont Gets Initial $4M Ch. 11 Loan

John Honovich

IPVM | 05/18/18 06:57pm

Comeback? :) Top billing in today's ADI flyer (though surely Hikvision or FLIRua will resume next week):

Jon Dillabaugh

Pro Focus LLC
In reply to John Honovich | 05/18/18 07:13pm

“Contera Indoor Dome Series”

Let’s use an image of a bullet camera!

Undisclosed #2

In reply to John Honovich | 05/18/18 07:22pm

Unless they are selling those for under $200 they are probably wasting their time and budget with ADI.

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