ADI To Be Spun Out of Honeywell

By John Honovich, Published Oct 10, 2017, 10:06am EDT

Honeywell has announced it will spin off ADI and its Home products division into a new public company.

This is a big move for the mega-security distributor ADI, whose power at promoting products is a significant industry force.

In this note, we examine Honeywell's plans, how it can impact ADI, Honeywell's security products and the overall security market.

Spin-Off ****

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**** ******

** **** ** *** more ** ** ***** more *********** *** *** details *** ********.

Comments (22)

It's interesting the most 'home' offering in the intrusion lines is staying with Honeywell. 

The Lyric system is not commercially positioned, and will likely need the strong distribution partnership with ADI to be a factor in the resi market.

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So the owner of the World's Largest Security Distributor admits that distribution is 'not a core competency' for them?

That explains a lot...

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the owner of the World's Largest Security Distributor admits that distribution is 'not a core competency' for them?

Let me explain in terms you can understand. It would be like you owning a minor league baseball team or an Aspen resort. For regular people, that would be their life, for you it is just one of many hobbies :)

Seriously, from Honeywell's perspective, ADI is ~1/16 of their overall business, so it clearly cannot be a focus relative to how big they are.

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It would be like you owning a minor league baseball team...

If I owned a minor league baseball team for 15 years, but was not focused on it and ran it like Sunday night bingo, how likely would it be to excel?

But, if I decided to then sell it, I sure wouldn't mention the fact that I let it twist.  

 

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Well, when they release ADI's financials next year, I guess we will see but I am pretty sure ADI has grown quite a lot over the last few years.

They are really good at pushing product; not so good at understanding the technology of products but good at selling.

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Without ADI being part of the same umbrella Honeywell Security Product sales will suffer a lot. I know executives at Honeywell have for years wanted to open up other distributors. 

I think this is a Lose-lose for both companies. Time will tell

 

 

 

 

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The “messaging” is that they will have access to products at ADI that were exclusive to other distributors.  I believe with little exception Manufacturer’s are tired of Northern and White Box either way.

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I wonder how this will affect Total Connect? Is this a plus for us folks selling ADC?

 

It is hard to see how they are selling Total Connect but keeping the Lyric Panel?

 

 

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Was this somehow the reason that DragonFly DIY was ditched abruptly?

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No... it was that bad. 

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Ah oh well Hikvision will just buy ADI, then watch what happens to everyone s market share and I don't mean Anixter. 

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Hikvision will just buy ADI

Related: What If Hikvision Bought ADI? As I said in that discussion I think there are benefits. What's changed since then is the Chinese government's willingness to permit such large deals (it would cost Hikvision ~$2 billion to buy ADI) has decreased dramatically in the past year or two.

One other thing that now I think is more of a realistic opportunity - Hikvision grooming / growing LTS as a competitor to ADI. This year, LTS has already begun to switch over to Hikvision branded sales and as LTS continues to expand location, I could see LTS as a much less expensive way for Hikvision to improve its distribution than buying ADI.

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I seriously doubt LTS makes much sense to expand in place of ADI unless the ADI acquisition doesn't take place. 

ADI makes much more sense for so many reasons. Top and Bottom line growth quickly with easily raised capital from public share offering. Controls and enhances distribution of your product and cripples many competitors at one time. Plus it gives you access to tremendous marketing data that is invaluable. 

The loss of ADI will hit Honeywell sales hard. The in house products lines are getting weaker by the month due to lack of marketing and engineer resources. The last five to 10 years have hit Honeywell Security hard, wrong people in charge who have made serious mistakes. I think ADI is holding up Honeywells internal product sales and without ADI the sales will crater much faster. 

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Well this is all speculation to the strong rumors running around, but as I said sometime back I used to buy distributors in various countries, move my own product lines in and got instant strong sales, and it was a home run in all but one country. Local culture and laws killed me in one place.

If I were Hikvision and I sold more product ffaster in the end maybe I wouldn't care what Axis and other vendors did, in my experience dealers don't switch distributors easily. Manufacturers would be hard pressed to replace the pull through of sales that having the products available on ADI shelves brings you or the ability to put items on sales in the monthly flyer.

Hikvision sales at ADI would mean more profit per sales as well since you are cutting the cake twice.

Also another factor is ADI has global outlets and infrastructure , the US is only about 1/3 of the world market. These country branches have relationships with the local dealers that would take any manufacturer a lot of time and money to develop. The power of the local staff and counter people is very strong don't under estimate this.

Hikvision bought Pyronix in the UK not long ago, this would be like buying Napco in the US, this is absolutely a distribution like product line, an insight into the thinking of the Hikvision strategy???

This is a worldwide chess game with the 9000 pound gorilla making the moves. I find it very interesting to watch.

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Was the mention of Napco a Freudian slip or an oversight?  They were the one alarm panel manufacturer to tell ADI to go take a hike.

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LOL! "no" Napco is most like Pyronix in terms of product lines but I know well Napco and ADI had a falling out. As I heard it, in a dispute they both mutually agreed to part ways.

 

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Napco and ADI had a falling out

And you know you just started to distribute Napco? LTS :)

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True but if you were going to carry a distributor oriented sensor , Ba/FA panel product line what vendor would you choose besides Napco?

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in my experience dealers don't switch distributors easily

Behaviors vary depending on the size of the dealer. Small dealers are more likely to stick with a distributor than a manufacturer, i.e., because a product is just a commodity, the value is in the distributor counter stock, financing terms, etc. But for larger dealers, the quality of the product, the relationship with the manufacturer's own people, etc. are more important than whom ships it.

So I think Axis would engender far more dealers to defect if they dropped a Hikvision owned ADI.

This is a worldwide chess game with the 9000 pound gorilla making the moves

After this year, it's pretty clear Hikvision is far more of a scared elephant than a gorilla. Take the most recent move of telling end users in their app to port forward, it's dumb on many different levels and certainly not the actions of any chess grandmaster.

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Your comments about larger dealers are true but ADI knowing exactly what they buy and how much they pay gives them a big leg up to try to switch the customer to Hikvision. You don't think they put a big hole in Napco when the split came, my company benefitted from it.  

I took over the largest distributor of alarm equipment in Australia who did not sell C&K products, they were the Aritech (Aritech was the big player at the time) distributor for many years. We kicked out there products totally and replaced it with my C&K product line, within a year I was the largest product line sold in the country. I attribute this to the great local staff that came with the company who had the relationship with the dealers So if you think there isn't substantial value to Hikvision buying ADI think again. 

Hikvision sure don't look scared to me, I am sure the competitors are though. I don't think a operational issue like you just put forward would slow anyone down. Certainly would not change any master business plan I had. While IPVM have been pointing out perceived weaknesses they still seem to be gaining in strength. Regardless how many sales they are doing there doing the P&L continues to look stronger every year. 

The way new product lines and technology are getting released it looks pretty darn aggressive and smart to me. The thermal products are excellant and highly marketable.

This is survival of the fittest , no different than the control panel / sensor war of the not to distant past. 

In any event time will tell. 

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So if you think there isn't substantial value to Hikvision buying ADI think again.

You need to address the cost of the deal. If Flink hands ADI to Hikvision for free, sure great deal. But using the Tri-Ed/Anixter deal as a benchmark, Hikvision's price for ADI would be in the $2 billion range. And Honeywell is not going to take Hikvision stock. They will demand cash. $2 billion in cash is not trivial for Hikvision and would require the Chinese government to approve a deal that large.

So, given that, I am not sure the deal will happen and the risk it fails is much higher given the money involved.

That said, I am not opposed to the deal. It would be a grand experiment in a mega-manufacturer buying a mega-distributor.

Hikvision sure don't look scared to me, I am sure the competitors are though.

From talking to various industry executives, the consensus is the opposite. If you think the backdoor, the WSJ article, the quality issues, etc. are not having a material impact, so be it.

Regardless how many sales they are doing there doing the P&L continues to look stronger every year.

The issue is their international branded business, which we both know they don't breakdown P&L for. And stronger inside China, sure. That's what happens when the overwhelming majority of business is from China and the company is owned by the Chinese government.

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