How powerful is the draw of recurring revenue, and how bad is the home construction market? Enough to make Stanley, a company synonymous with construction tools such as levels and tape measures, sell one of those tool divisions so it can purchase Sonitrol, the eighth-largest security company with $110 million in recurring revenue.
Sonitrol, known for its "listen in/two-way voice" technology that helps reduce false alarms, is commonly used in commercial security installations. It will be folded into Stanley's Convergent Security Solutions unit.
Meanwhile, one primary reason given by Stanley for selling the tool division is so it will be "less dependent on construction and DIY markets."
In a nutshell, Stanley Works (NYSE: SWK) entered into an agreement to sell its CST/berger laser leveling and measuring business, based in West Lafayette, Ind. to Robert Bosch Tool Corporation for $205 million.
This operation had 2007 revenues of $80 million (excluding certain European sales of approximately $10 million), primarily in North American construction-related markets.
The transaction, which has been approved by the Boards of Directors of Stanley and Bosch, is subject to regulatory approvals and other customary conditions, and is expected to close during the next several months at which time the company expects to realize a pre-tax book gain totaling $138 million.
Net after-tax cash proceeds from the sale are expected to approximate $155 million.
In a separate transaction, the company also announced that it has entered into an agreement to purchase 100 percent of the shares of Sonitrol Corporation from an ownership group comprised of Carlyle Venture Partners, Wachovia Capital Partners and Spire Capital Partners as well as selected members of Sonitrol management for $275 million cash (approximately 10x EBITDA).
Sonitrol, headquartered in Berwyn, Pa., provides security monitoring services, access control and fire detection systems to commercial customers in North America via two monitoring centers and a national multi-channel distribution network.
Sonitrol, the eighth largest electronic security company in the U.S., brings a strong brand, its well-known audio-verified monitoring and a substantial national account base to Stanley's Convergent Security Solutions.
Sonitrol, with revenue totaling approximately $110 million will report into Stanley’s Convergent Security Solutions business which had 2007 revenues approaching $600 million.
The Boards of Directors of Stanley and Sonitrol have approved the transaction, which is subject to regulatory approvals and other customary conditions. The acquisition is expected to close during the third quarter of 2008.
John F. Lundgren, chairman and chief executive officer of Stanley, said the "two transactions are important steps toward advancing our growth strategy and repositioning the company to be less dependent on construction and DIY markets."
He went on to specifically cite the recurring revenue from Sonitrol as the attractive part of the transaction.
In addition to the two transactions, Stanley is developing plans to exit several small, non-strategic product lines during the remainder of the year with associated revenues of approximately $60 million.
The Stanley Works is an S&P 500 company with 2007 revenues of $4.5 billion. Its tool and storage brands include Stanley as well as FatMax, Facom, Bostitch, Jensen, Mac, Proto, La Bounty, Vidmar, and InnerSpace. The company employs approximately 20,000 people.