"The time is right to invest in the security industry"

Joseph Grillo, CEO of ACRE LLC & Vanderbilt Industries

On the 20th of October Vanderbilt Industries announced that it has entered into an agreement to acquire Siemens' Security Products business from Siemens' Building Technologies Division. With Joseph J. Grillo as the Managing Director, Siemens's Security Products will become a part of Vanderbilt International. Joseph J. Grillo is a true security veteran and Detektor has interviewed him about his view on the security market in general and the role of Vanderbilt International in particular.

Acquisition is nothing new to Joseph J. Grillo. Executives in the electronic security and identification industries may recall a time in the not too distant past, when a series of acquisitions led by a recognised leader in the physical security business took the industry by storm. That leader, Joseph Grillo, drove a consolidation effort with the vision that a fragmented electronic access control market was evolving through advancements in identification technology to protect both physical and digital environments.

Starting with its acquisition of HID, which had grown rapidly and successfully under Mr. Grillo's leadership, Stockholm listed Assa Abloy was the one to benefit from this strategic vision. Back then the joke shared at the trade shows was "should we all be learning Swedish?" Today, Mr. Grillo's name is associated with a new company: Vanderbilt Industries, as well as its parent company ACRE LLC. While the Vanderbilt name is new, the company has a long legacy of providing enterprise level security solutions. And through the acquisition of Siemens Security Products the Vanderbilt brand has got a kickstart on a global level.

You have said that the acquisition of Siemens Security Products will considerably expand Vanderbilt's presence in the security industry by broadening the company's competitive position. But how does it fit into Vanderbilt's strategy and organisation?

Well, the acquisition of Siemens' Security Products fits our corporate strategy perfectly. It matches Vanderbilt's solid foundation and strong legacy built from nearly three decades in the security industry.

Can you develop your thoughts about why Vandebilt decided to go after Siemens Security Products and the benefits of acquire the business?

Vanderbilt saw an opportunity to expand its product offering and geographic market coverage. The addition of SP represents significant value potential with its established installed base of customers and loyal resellers. The market trend is for integrated security management systems and more open solutions from trusted suppliers. SP clearly provides a vehicle to offer these solutions to a broader customer base.

Your return to the industry in 2012 with parent company ACRE, and its subsidiaries, Vanderbilt has already resulted in the acquisition of Schlage SMS business in 2012, Mercury Security in 2013 and Siemens Security Products in 2014. Should we expect more developments similar to those we saw at the time of Assa Abloy's acquisitions?

Firstly, it's worth noting that Assa Abloy has continued to grow and be acquisitive, maybe at an even greater pace in the years since I left. Under great leadership and execution of their strategy, they have clearly outdistanced all their competitors.

At HID, even before Assa Abloy, we combined some key acquisitions with substantial organic growth to build the world's leading card and reader manufacturer. Assa Abloy, which acquired HID in 2001, then gave myself and our management team the opportunity (and of course the treasury) to bring together a number of industry players, especially in Europe. We fairly rapidly acquired Indala, Omnikey, Sokymat, Metget, ACG, Interlock and Fargo Electronics just to name a few. We integrated their product offerings to acquire greater technical expertise, global market share, a broader array of products and began to move the company from being simply a card and reader manufacturer to an Identification Business. This proved to be a successful proposition and it continued after I left under successors that I personally recruited. I'm proud of that legacy.

And what can we then expect from Vanderbilt?

Today, we again see indications that the time is ripe for a season of change in the security industry. The fragmentation that existed in the access control market when I left the industry in 2008 is still quite evident with even more new market entrants on the scene. I believe this creates consolidation opportunities for companies with the requisite industry knowledge, technical competence and market experience. We have all of these at ACRE and Vanderbilt, and, because we are well financed, it is reasonable to expect we will grow our two platforms both organically and through acquisition.

How would you characterise the current state and positioning of the security industry?

In spite of the fragmentation, the security industry has been – and continues to be – a steadily growing business. The opportunity to leverage this, while simultaneously consolidating and integrating the highly fragmented Access Control "OEM" segment, is an opportunity we have analysed and are executing on. In many cases, large multinational companies that have consolidated and integrated security products into their product portfolios have produced inconsistent results. We believe that both our experience and our approach will provide for a very positive result.

Are there key reasons today for investors to look at opportunities in the security industry with reinvigorated interest?

There certainly are and to name the most significant, I would differentiate between the market related, application related and technology related categories of market trends.

So what do you mean by market related trends?

Security has become mainstream, and as a business, it has become ever more important for organisations to protect their most valuable assets. A decade or two ago we were most inclined to focus marketing efforts on the largest corporate end users and government sectors. Today, not only in the States, where a CSO function has been long-established in the corporate world, security investment is on the rise in every market segment; hospitals, public infrastructure, educational facilities at every level, and for all businesses from small to medium sized enterprises to the largest corporate end users. And integration of sub systems is as important as ever, particularly of video and identification.

And what about application related trends?

Convergence of the physical and digital worlds, now intertwined and "managed" via smart applications, drives demand for new systems capable of offering controlled access to both domains seamlessly while supporting all corporate functions while maintaining easy operation.

And finally Technology related trends?

Technologies transformed by the digital revolution have matured and are increasingly being adopted in the slow to change security industry. The use of video monitoring and management has exploded, as has the need for integration of video and access/alarm monitoring. The use of mobile devices to manage these systems is being demanded by busy security executives and protective forces. These changes are helping drive market demand.

If these factors and reasons to invest are embraced and recognised industry-wide, how will you and your team do it differently – and better than others?

As I indicated earlier, we believe we will be successful because of our past experience and a very different but focused approach. Our approach is to focus primarily on consolidation of the highly fragmented "OEM" step in the electronic access control market value chain. The key to this strategy is a belief that using ACRE portfolio company Mercury hardware (control panels) as a foundation for the consolidation provides a unique opportunity to offer a more "open" environment that is highly desired by both the end user and consulting communities. Bolt on acquisitions will be much easier when only the "front end" software is proprietary.

During my tenure at HID, and then at Assa Abloy, I led management teams completing well over 20 acquisitions – not one of which failed. This proven track record, along with teaming up once again with former executives/colleagues that made up those past management teams, will enable us to search out the right targets at the right valuations, execute on integration of operations, and recruit and retain top management as we grow in a controlled and profitable manner.

Ten years ago you stated that biometrics was not a panacea, but a powerful tool to be used in combination with other technologies to provide effective security. Does this still hold true for you today?

Biometrics was viewed as a potential disruptive technology. Many predicted it to be the end for HID's card and reader business. I have always maintained that biometrics was more a complementary technology, and this has proven to be the case. I believe this is also the case with what many are today predicting are disruptive technologies including smart mobile devices, smart locks or newer biometric technologies. In my opinion, the industry will benefit from all of these as they become parts of complete solutions, allowing a broader number of end user companies to utilise security solutions to provide the right value for the required application.

What are the key elements of success? If you could pick the most important things to duplicate every time you make an acquisition or start a new venture, what are they?

First and foremost, have a good strategy. Communicate this to the three key stakeholder groups; customers, suppliers and employees. Back this up with good products and unparalleled technical support and customer service. Execution is the challenge you face on a day-to-day basis. By providing the right leadership and culture within the organisation(s), you can recruit and cultivate leaders and team players to allow you the best opportunity for success. And of course, a little luck never hurts!

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