Stanley Black & Decker keys in on overseas security market

June 28, 2011

Stanley Black & Decker Inc. is making the largest bet since its 2010 merger by joining the biggest wave of security-services takeovers in history as a safeguard against the U.S. housing market.

The Connecticut-based company on Monday agreed to buy Sweden’s Niscayah Group AB for $1.2 billion—its biggest deal since Stanley Works’ $4.4 billion purchase of Black & Decker Corp.

The iconic toolmaker entered the security business in 2003 with the $310 million acquisition of Indianapolis-based Best Lock. Its security division, headquartered in Indianapolis, has about $2 billion in annual sales.

Stanley Black & Decker is boosting sales of video surveillance and fire alarm systems in Europe by spending cash held overseas to lessen its dependence on a U.S. housing market that has lagged behind the rest of the economy. And it’s not alone. There have been $5.6 billion in security services takeovers announced already in 2011, data compiled by Bloomberg show.

“The reason they are trying to insulate themselves from the housing business is because they’re skeptical of the rebound,” said Malcolm Polley, who oversees $1 billion as chief investment officer at Stewart Capital in Indiana, Pa. “With the consumer still on the ropes, I am sure they are looking for a way to add stability to their income statement. Security services is a relatively stable, repeat business.”

Company spokesman Tim Perra declined to comment and referred to a Monday conference call. Chief Operating Officer James Loree said on the call that the transaction is “consistent with a strategy that we’ve been discussing for several years now, which is to expand our electronic security footprint in Europe.”

Johan Andersson Melbi, a spokesman for Stockholm-based Niscayah, declined to comment.

Stanley Black & Decker, known for its DeWalt power tools, got more than half of its revenue last year from construction and do-it-yourself home improvement equipment, 25 percent from its security unit and the rest from industrial tools, such as wrenches used by auto mechanics. With 55 percent of $8.4 billion in sales generated in the U.S., according to regulatory filings, the company is trying to increase its presence in Europe by acquiring Niscayah.

The recovery in the housing market and employment gains that help fuel home sales remain sluggish even after the longest U.S. recession since the Great Depression ended in June 2009.

Purchases of new U.S. houses fell 2.1 percent to an annual pace of 319,000 in May, data from the Commerce Department showed last week. The unemployment rate was 9.1 percent last month, 1 percentage point less than the 26-year high of 10.1 percent in October 2009, according to the Labor Department.

“If you take a look at the combination of Stanley and Black & Decker last year, that opened up the company to more exposure to the home repair and remodeling segment that is a lot more volatile,” said Robert Rulla, a debt analyst with Fitch Ratings in Chicago. “The addition of this at least provides them with a lot more diversity in terms of both geography and end market.”

Niscayah, which was spun off in 2006 from Stockholm-based Securitas, installs and services security systems for banks and retailers. The business brought in about $922 million in revenue in 2010, most of which was in continental Europe.

Stanley Black & Decker’s cash offer for Niscayah, which is endorsed by the target’s independent board members and already supported by shareholders owning 19.5 percent of the stock, trumped a $1.1 billion stock bid including net debt from Securitas, which was aiming to reclaim the company.

“If they want to be a bigger player in the security market, when these sizeable assets become available, which is rare, you have to jump on that,” said Nicole DeBlase, an analyst at Deutsche Bank AG in New York, who added that the industry is fragmented by “mom-and-pop” businesses.

The deal is being financed from almost $2 billion in cash overseas to make use of “unproductive” capital “trapped” outside the United States, COO Loree said.

Although Stanley Black & Decker stated in a March 3 investor presentation that acquisitions were “not likely to exceed” $500 million to $700 million in total this year, the company decided on the $1.2 billion deal because of its “incredible strategic relevance and attractiveness,” Loree said.



Recent Articles by Bloomberg News

Comments powered by Disqus