UTC Really Screwed Up The Interlogix Shut Down

By John Honovich, Published Sep 27, 2019, 08:40am EDT (Info+)

UTC has made many mistakes in security over the years, however, the shutting down of Interlogix is one of the biggest screwups in industry history.

Interlogix has lots of problems, significantly the fault of UTC, but the errors that UTC has made in this process has made them far worse.

Inside this note, we examine:

  • Why UTC did not shop this around
  • Why UTC should have shopped Interlogix
  • Why the tax savings speculation is not sensible
  • How much ill will this has engendered
  • What risks this now poses for Lenel / S2

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Comments (35)

Well, UTC doesn't care about the security business because UTC is getting out of the security business.

United Technologies, one of the largest industrial companies in the world and worth more than $130 billion, is undergoing a massive transformation. It plans to split into three companies: one focused on aerospace, one selling air-conditioning, and a third selling elevators. After that’s done, its aerospace division plans to merge with Raytheon.

In other words, Interlogix (and Lenel) is nothing but a distraction and a complication for UTC right now.

A lot of my customers have a large base of Lenel currently installed, and they must be getting nervous. And I've noticed a lot of new projects that should have gone to Lenel going to Gallagher instead. Expect that trend to accelerate.

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UTC is getting out of the security business.

I don't think that's a fair description of a link to the UTC split. Sure 'UTC' proper won't be in the security business but UTC spinout Carrier will be. As I mention in the post, there's still the risk / issue of how much even Carrier cares about the security business.

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Sorry if I was unclear.

I believe this is a clear signal that Carrier does not care about the security business. They're trying to streamline the company. They'll probably kill Kidde too.

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They'll probably kill Kidde too.

That would be a surprise too. Kidde branded smoke detectors and fire extinguishers are sold in many/most home improvement and 'big box' retail stores.

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I was told years ago that UTC never understood the security and fire business. Wanted stable, consistent profits and to run them like an aerospace company. Lots of reasons they were declining, but not for lack of people trying. Let's hope there are solid companies and people that understand their value and can get them bought to bring them back to the top of their fields. I don't think it would take much if the right people are involved and they can move quick. A lot of potential there. I agree, there is no warm and fuzzy feeling right now with Lenel and Kidde, but anyone can be bought or sold tomorrow.

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My company is an aftermarket repair services company that repairs a great deal of out-of-warranty Lenel devices for major integrators. We are quite capable in repairing what is in-warranty as well if Lenel customers do not find the lead time and pricing competitive. But my question is: Would you, as a Distributor, be interested in offering such support/maintenance services to your installed base of integrators in order to help them take care of their customers?

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I wonder if the Pelco deal ultimately impacted the decision to wind down Interlogix vs. sell it off. Pelco was shopped pretty hard for a long time, and they clearly did not have any takers in terms of legacy/experienced security brands, or even PE firms that have done other work in security.

I feel that the general lack of excitement around the Pelco sale, and the unclear path forward for Pelco, could have impacted UTC to conclude that selling off Interlogix would be an expensive and time-consuming process in itself, possibly with no better net bottom line to the parent company.

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Pelco was shopped pretty hard for a long time, and they clearly did not have any takers in terms of legacy/experienced security brands, or even PE firms that have done other work in security.

How much of that was due to the price wanted? If I try to sell a beat up 95 Civic for $2,000, it might take a long time, if ever to sell. But if I say $1 for that same car, presumably someone will take it fairly quickly, no?

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But a large business is not a car.

On a deal like this the buyer still has to do a ton of due diligence, even if buying it for $1. That takes time and money. And then once you buy it, you have immediate overhead in the form of payroll, most likely a ton of rent expenses, logistics in terms of separating the Interlogix people, operations and inventory from the UTC parent if any of this is co-located or co-mingled in any way.

Even for $1, this would be a messy expensive deal. Then you face the fact that Interlogix is likely selling it off because it is not throwing off tons of cash in the first place. So now you have a messy, expensive "problem child" to get under control.

Preparing Interlogix for sale would likely take a year of effort on UTC's part (un-co-mingling things, preparing decks, etc.), not to mention a lot of money, and distraction. And, it is not clear they would get any kind of a premium for the business, they could spend another year+ shopping it around, incurring expenses to do so.

I am not aware of the internal financials and profitability of other UTC organizations, but to expand on your 95 Civic analogy, sometimes it is less headache to just park it in the back pasture and forget about it vs. trying to sell it, or even donate it, particularly if you have a bunch of other, nicer, cars that need a little bit of detailing.

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That could be the right analogy.

logistics in terms of separating the Interlogix people, operations and inventory from the UTC parent if any of this is co-located or co-mingled in any way.

On the other hand, they now have the mess of winding it down amidst panicked terminated employees, etc. A car can easily be abandoned but not so much a business with lots of employees and customers so maybe my car analogy is wrong...

One other thing - maybe Intelogix is going to have a monster / great Q4, as their own letter alluded to:

If they sold it off, they would not get this last bump but that's one hell of a crazy move to get one last cash infusion.

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On the other hand, they now have the mess of winding it down amidst panicked terminated employees, etc.

Of course.

We should keep in mind, there was likely no such thing as a "good" outcome for Interlogix. Every path forward was likely going to have significant downsides. This is different than when ACRE sold off Mercury for example, Mercury was doing well so they had options like hold onto it longer, spin it off to an independent company, sell it to the highest bidder, etc.

UTC most likely chose the lesser, or most manageable, of multiple evils here, possibly solving for efficiency or simplicity (relatively speaking) vs. going down a costly path of divesting it with an unpredictable outcome.

I will say I would have expected UTC to try and at least soft shop this, but I also was not totally surprised to see that they decided to just pull the plug on it and be done.

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If they sold it off, they would not get this last bump but that's one hell of a crazy move to get one last cash infusion.

maybe they get that one last bump, then they sell it ;)

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maybe they get that one last bump, then they sell it ;)

If they try that strategy, a $1 sale price for the company won't be some hypothetical concept, it will be the high bid. Rounded up.

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maybe they get that one last bump, then they keep it ;)

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get that one last bump, then they sell it ;)

Get your Friday funnies in!

The act of announcing the 'wind down' has further reduced the value of the company as (1) customers are already scrambling for new suppliers and (2) employees for new jobs, reducing the leverage that UTC might have in negotiating a discreet sale.

They still may sell it or at least parts of it but they won't get the product sales bump and

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...won't get the product sales bump and

they can’t have their cake and sell it too...

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Touche, I walked into that one, related: Interlogix Releases a Cake

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I started working for Chubb Edwards (Canada), a few years after UTC bought all that GE stuff. I now work with a few fellow ex-chubb employees somewhere else. These guys happened to have been part of GE's little known Integrator. They had many names, these guys seem to mostly call themselves "ISS".

The rumour between them and other former Chubb (Canada) co-workers was UTC really just wanted the Edwards brand, and got "stuck" with all this other stuff. Namely the fire service/installation for Canada (which Chubb had gotten out of decades before) and a whole other Integration company which they then merged with Chubb. The GE side of things operated much differently than Chubb, from what I was told. Lower margin, larger, unique jobs. Where as Chubb was generally higher margins, and pretty cookie cutter stuff. Slowly over time, as GE Security folks left, and for other reasons Chubb wound down all the stuff GE/ISS traditionally did. What they called their ICS(?) part. Which basically handled large, unique jobs, Nurse Call, Large Access, Audio systems, stuff like that. Ultimately what seemed to remain was mostly what Chubb was before, with the added bonus of Fire Service and Install.

I wonder if Interlogix was something similar? This thing they just got stuck with by getting the Edwards brand, and have finally shut it down. It does seem super strange they didn't try to sell it. I mean they allegedly even tried to sell Chubb (Unsuccessfully), why not try to sell Interlogix?

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The closing down of interlogix really has no impact on our business with the exception of some door contacts here and there. I know in these comments there were some comparisons to Arecont and Pelco. I will agree that both Pelco and arecont have an uphill battle but the difference both of those companies are video surveillance solutions. Interlogix on the hand was intrusion, access control, video surveillance, door contacts, network switches, but in my opinion none of the offering brings any substantial value.

The intrusion market has changed, the video solution was an OEM and in today’s climate that is a battle. The accesss control solution is distribution product and is not something I would sell and gets lot with the other products available through distribution and even more so when you look at the S2 and lenel

In my opinion maybe the intrusion was the best option for selling it off with the potential of converting it to DYI solution for residential.

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Maybe there was a lawsuit for product liability they are leaving behind, there certainly are product lines that are sellable that don’t need prettying up. Lots of specified products in the old Sentrol product line as an example.

The ITI wireless technology is still very useable, it’s older but look how old Vista and its associated Ademco wireless is.

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Maybe there was a lawsuit for product liability they are leaving behind...

did Zwirn finally hook a big one?

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Now that could be true? Where did Zwirn go seems like he disappeared?

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He’s fairly active on LinkedIn. I follow him there because, once you decipher what he’s trying to say underneath the long sentences full of thesaurus Bingo, he’s actually pretty insightful. Just because he’s a bad writer with a prickly ego doesn’t mean he’s wrong.

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Just because he’s a bad writer with a prickly ego doesn’t mean he’s wrong.

Well, yeah, IPVM is proof positive of that :)

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Where did Zwirn go seems like he disappeared?

InterceptorLogix...

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Announcement from Interlogix Australia:

23 September 2019

To our valued customers,

As you may be aware, Interlogix U.S. recently shared its decision to wind down the Interlogix U.S. and Canada businesses in order to focus on growth opportunities, in other fire and security businesses worldwide.

This action is specific to the U.S. and Canada only and at this stage there is no impact on the Interlogix business in Australia and New Zealand. In particular, the Tecom portfolio is not impacted as the product is engineered and developed out of Australia for global distribution. Please also note that there is no impact on other brands including Lenel, Kidde, Onity and Quell.

Please be assured that for now, it remains business as usual for Australia and New Zealand and there will be no impact in your day to day relationship with your Interlogix representative.

We will continue to communicate with you however in the meantime if you have any further questions we ask that you please contact Phil Brown (General Manager ANZ) at Philip.brown@fs.utc.com or Andrea Wynne (Communications Manager ANZ) at andrea.wynne@fs.utc.com.

Kind regards,
Philip Brown General Manager

The interesting part of this is that Interlogix AU has been haemorrhaging business, especially since the End of Life announcement of the Forcefield system (some 5 years ago) and the aborted development of it's replacement (2 years ago), not to mention the bungled "roll-out" of the Tecom Challenger 10 platform.

Once the Forcefield replacement was shelved, Interlogix announce that C4 was being brought on as it's "replacement". Question is - Given the shutdown of the US side of the operations, what does this mean for future development and support for the C4 platform, if anything??

I know that many organisations still using Tecom are now looking to move ANYWHERE. I know a number of large organisations have already migrated away to competing platforms (Inner-Range and Gallagher most notably) and I don't see this trend slowing.

Interlogix Australia may SAY theyr're not going to be impacted by this US shutdown, but frankly, that may be because they're already dead in the water...

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#5, thanks for sharing, very informative.

From that letter, the most believable part to me, as an outsider is:

the Tecom portfolio is not impacted as the product is engineered and developed out of Australia for global distribution

The part that does not make sense to me is what does Interlogix Australia plan to do given the other Interlogix products will stop being manufactured in 3 months?

Btw, the 'for now qualifier in their statement is not a great sign as if they were truly confident that they would be unaffected, they would not need to insert that:

Please be assured that for now, it remains business as usual

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Btw, the 'for now qualifier in their statement is not a great sign...

”That’s All For Now, Folks!”

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I said it in the other thread.

If you look at this in conjunction with the Hills distribution wind up rumours. You wouldn't be touching Tecom Challenger with a 30 foot pole if you could help it and certainly looking at other options for any expansions.

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No doubt this has been a debacle since UTC bought it from GE. Limited R&D, the fiasco with the Advisor, constantly changing field reps and territories, and the like. They got it handed to them by innovators and disruptors in the industry like 2gig and now QOLSYS. It is a classic example of what NOT TO DO.

That's all too bad because there are A LOT OF Simon, Concord, Networx systems operating in the field.

Good point...you would have thought there is value out there for their brands. Go figure. Futher mismanagement!

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Hills in Australia www.hills.com.au is heavily invested in tecom and the Networx alarm panels.

Without these products the Hills security division would be in serious trouble.

Lets see how long until Tecom is killed off and the more up to date Inner Range products take its place.

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Without these products the Hills security division would be in serious trouble.

Hills as an entire entity is in serious strife. Currently the only viable division of Hills is the health services division. That is literally propping everything else up.

About 10 years ago Hills was worth 4B AUD, share price today is 25c (although it's been lingering around the 17c mark for the past 12 months) giving the company a market cap of around 50M.

Despite doing 260/270M in sales, they're still haemorrhaging money.

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Not too surprising. I worked for Chubb years ago - or were we Red Hawk - or were we Chubb again? I think it's fair to say that UTC never really had a firm grasp on the security industry, either from the integrations side or the manufacturing side. The idea of being able to provide a one-stop shop for all building system needs sounds pretty appealing, I suppose (i.e., Ingersoll Rand Security Technologies), but these guys need to let those divisions run themselves or get out of the game entirely. Interlogix was a great brand at one time; sorry to hear of their impending demise.

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Does this make sense from Inovonics: "The Glassbreak detector (EE1247/EN1247) has no effect on the Interlogix (UTC Subsidiary) shutdown. UTC will maintain as our supplier for the glassbreaks."

And also -- why are they still sending new product announcements (Introducing a new update to the Concord 5" TouchScreen)?

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I’ve heard rumors of the shutdown being temporary and that they are aiming to become a dealer direct product under the carrier label. I haven’t been able to get this confirmed or substantiated but I’ve now heard it from multi sources.

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