Case Study: Acquiring Minds

The Bellevue, Wash.-based residential systems integrator last summer acquired Digitech Home Systems, which Travis helped launch in 2000. Now Digitech, also based in Bellevue, stands as the stepping stone for a budding home integration franchise.

In the four years since its inception, Home Technologies has seen its annual revenue rise to about $13 million, despite having to weather one of the worst economic climates ever. What's more, the Puget Sound Business Journal recently named Home Technologies the 34th fastest-growing private company in Washington state.

And the integrator shows no signs of slowing down. Home Technologies last fall also closed its acquisition of Bellevue-based Premiere Technology Group, snared funding to fuel further expansion, and is looking to acquire even more residential technology companies. "I built Digitech as a proving ground for what we're doing with Home Technologies," Travis says.

What Digitech proved for Travis was that offering a diverse range of products, from home theater to IP-based security, along with margin-rich installation and support services, all based on standardized methods and technologies, is a sure recipe for a prosperous digital home solution company. Digitech quickly grew into Washington state's largest residential systems integrator in just three years and was ranked 15th nationwide.

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Yet back in 2000, Travis' initial idea was to start a franchise of home integration companies. So in 2001, he opened Home Technologies, something of an umbrella company that would oversee a growing number of new Digitechs.

"Most of our clients want us to be able to take care of all their needs across a wide menu--audio/video, lighting, security," Travis says. "So the original vision was to do something I hadn't seen anyone else do: build a large, regional, West Coast or even national company or franchise, a string of businesses in the home integration space."

In the early going, however, he discovered that a lot of franchisee candidates--small electronics shops and specialty security, lighting and audio/video stores--were having such a tough time surviving the unstable economy that being bought outright was a more attractive option.

"Many of these smaller dealers and electricians across the country wanted us to acquire them or make them part of our system," Travis says. "You can take an electrical contractor in Portland, [Ore.], and bring him the knowledge he needs in home integration and get the space growing at a faster rate in that area. But these types of businesses instead wanted to be part of a national brand and have the buying power, marketing reach and software expertise that comes with that."

That realization led Home Technologies down the acquisition trail. After buying Digitech, Home Technologies acquired Premiere, a custom install firm. And the following month, Home Technologies landed $2.5 million in private placement funding for more dealer acquisitions and expansion capital. Travis says discussions are under way with several other small home integrators and residential systems boutiques interested in being acquired by Home Technologies.

"The next milestone is $25 million in [annual] revenue," Travis says.

To reach that mark, Travis says he aims to continue Home Technologies' acquisition strategy and, next year, roll out a formal franchise model for adding locations nationwide. Plans call for a Web-based portal that would enable franchise partners to tailor a residential technology network for their customers, and Home Technologies' team of about 15 system designers will have access to the portal's database of standards-based components and off-the-shelf product suites. The goal is to establish business standards and practices that hopefully will allow potential franchisees to re-create the successes of Digitech and Home Technologies in other parts of the country, Travis says.

But the crux of the revenue model is clear: Franchisees must be able to provide all of the products and services needed to fully wire and/or network a home. To get a better shot at the opportunities in their market areas, Travis says, franchisees need to offer a broad menu that includes installation and service of home theater systems; controls for home lighting, door access and environmental systems; IP-based residential security systems; communication networks for the home; and even standard electrical services.

At press time, details of the franchise supply chain, franchisee certifications, lead generation and training were still being finalized.

Travis says he's a major evangelist of the IP standard, which lets Home Technologies quickly and affordably interconnect surveillance cameras, home PCs, lighting systems, door locks and other IP-enabled devices. He also makes sure that a home integration project includes enough electrical conduit to allow for future power upgrades and the addition of new devices.

Though interoperability remains a big hurdle for IT, consumer-electronics and custom-electronics vendors, the ever-increasing number of networked homes is pushing the industry to make progress on the standards front, according to Travis.

"Lack of industry standards is a challenge because, let's be honest, none of this stuff was meant to go together originally," he says. "But consumers have been driving the changes in the industry with their dollars."

New construction is considered to be just one of the hotbeds of home integration activity today, but other huge opportunities are on the horizon for digital integrators, Travis says.

"New construction represents just 1 percent of the housing market. The biggest market hasn't been tapped yet, which is the midmarket of already-built houses, not luxury homes. Then from there you move to the retrofit market, spec homes, high-rise towers and golf course communities," he says. "There are some markets where we are negotiating on developments that have thousands of homes in them. In that type of market, we need to have vans on the ground for services. Some of them are 15-year projects, and we may not get all the work. But if we get [involved] early, we get more."

By forging a solid business model that heeds industry standards and boasts a wide array of products and services, Home Technologies will enable its franchisees to prevail during what Travis sees as the inevitable consolidation in the home integration space.

"I believe our industry is starting to enter a consolidation period and will emerge with a limited number of dealers, but dealers who are much larger in scale," he says. "We have developed a franchise model for our company, but with this first wave of growth we are doing it through acquisitions to make sure the value proposition we are driving is maximized. In the long run, there's opportunity out there for us to take a small home integrator that has been making $5 million in revenue a year--and probably capping out at about $3 million a year--and then scale it into a $15 million- or $20 million-a-year company."