Argyle Security Case Study

Company Background:

Argyle Security Inc. is a detention and commercial security provider based out of San Antonio, TX. Established in 2005 originally as Argyle Security Acquisition Corporation, Argyle Security Inc. operates through five different business units ISI, MCS, PDI, Com-Tec, and MCS Fire & Security business units. In April 2008, the private equity firm MML Capital made a $15 million investment into Argyle Security. The company has since successfully positioned itself to take advantage of increasing domestic incarceration rates and the need to house and secure an ever growing number of inmates.

Segments

ISI

The ISI business segment primarily designs locks and detention equipment for prisons. Some of the products they design
MML purchased 18,750 shares of newly created Series A convertible preferred stock, with each share convertible into 100 shares of Argyle's common stock at $8.00 per share at MML's option. At the time, Argyle’s board of directors was composed of 14 members, but as a result of the deal, was reduced to seven members. Four of which were MML Capital professionals and the remaining three were previous Argyle board directors. Argyle president and COO Sam Youngblood said in a statement the investment “sends a clear message, especially to our customers, that we intend to maintain our position as an industry leader. While recognizing the challenging environment, we are determined to provide the exceptional service and project management expected by our
purchased ISI Security Group Inc. in a cash and stock transaction. As part of the deal, ISI stockholders received $16.3 million in cash and 1.18 million shares of stock. Argyle also agreed to assume a $6 million line of debt from ISI. The total deal was valued roughly around $30 million. For the nine-month period ending Sept. 30, 2006, ISI generated $41.2 million in revenue and $4.1 million EBITDA. Giuliani Capital Advisors LLC, a New York investment banking firm advised Argyle Security throughout this deal.
Com-Tech, PDI, and FireQuest
In 2008, Argyle acquired three new companies for a total of $14 million, including transaction fees. Com-Tec was acquired in order to produce cost savings through Com-Tec’s lower-cost technology. Additionally, Com-Tec was expected to add $1.5 million in recurring revenues for Argyle. Pederson Detection (PDI) was acquired in hopes of to increasing margins through sourcing realignment. FireQuest was acquired with the aim of gaining synergies with the MCS- Commercial Industry.
Industry