He’s Buying Security’s ‘Holy Grail’ : CPP’s owner feels special responsibility to enhance reputation of Pinkerton’s

Thomas W. Wathen has been guarding something most of his life.

As a security expert, he has spent 36 years protecting people, offices, government facilities. Now comes his biggest assignment: protecting the reputation of the most famous company in his business--Pinkerton’s--and the money he’s spending to buy it.

Wathen, 58, is the sole owner of CPP Security Service, based in Van Nuys, a provider of security guards and a Pinkerton’s rival. Two weeks ago, CPP--known locally as California Plant Protection--agreed to buy 137-year-old Pinkerton’s from American Brands, the conglomerate based in Old Greenwich, Conn.

The merger, expected to close next month, would lift CPP from the fourth biggest security guard firm in the industry, with sales of about $250 million, to sales of about $650 million a year. The number of employees would more than double to 50,000.

That would put Wathen’s private company into a virtual tie with Borg-Warner Corp.’s security guard unit as the biggest player in the $6 billion security guard market, said Robert McCrie, editor of Security Letter, an industry newsletter in New York.

(Borg-Warner’s guard division is part of the Chicago-based company’s “protective services” unit, whose annual revenue topped $1 billion last year. The unit has interests in several other security-related fields besides guards.)

But the merger means much more to Wathen than just further expanding CPP. It is as if a lifelong baseball fan had the chance to buy the New York Yankees and was determined to produce another 1927 season.

The Holy Grail

“I don’t mean to overblow this thing, but I have a personal sense of responsibility to enhance the image of Pinkerton’s,” Wathen said in his modest office, which looks out over a public golf course. “Pinkerton’s is kind of like the Holy Grail to me. I’m a security man first. I’m forced to be a businessman.”

Nevertheless, although Pinkerton’s is the oldest name in the security-guard industry, it is far from being the best-run. In fact, the company has been losing money.

American Brands, while not divulging Pinkerton’s financial results, confirmed that the unit lost money in the first half of 1987 after a profitable 1986. Wathen, McCrie and others said it is well-known in the industry that Pinkerton’s has been struggling.

“It was only because they were not doing well that they became available” for sale, said Wathen, who first asked American Brands about selling Pinkerton’s 18 months ago.

Neither CPP nor American Brands will disclose Pinkerton’s price tag. But a knowledgeable industry source, who asked not to be identified, said CPP paid less than the $165.5 million that American Brands paid to buy Pinkerton’s five years ago.

Wathen has “his work cut out for him,” said George Wackenhut, chairman of Wackenhut Corp., a concern based in Coral Gables, Fla., that is the nation’s third biggest security firm.

McCrie agreed the merger “is going to be very challenging.” But he said Wathen “is one of the very best choices possible to turn Pinkerton’s around.”

One problem is that the security guard industry is crowded with more than 10,000 competitors and hobbled by thin profit margins of 2% or 3% after taxes. Although Wathen does not release profit numbers, he said his company’s profit margins are about average.

CPP’s business is providing security guards, primarily for big industrial clients such as Northrop, Security Pacific, Hewlett-Packard, NBC and IBM. Wathen maintains he has 200 of the Fortune 500 as customers. Only 1% of CPP’s overnight and daytime security guards are armed, as many clients are reluctant to have an armed guard present, in part because of expensive liability insurance. Turnover can be high among security guards, a job with average wages of between $3.50 and $10 an hour.

Because CPP also is using borrowed money to buy Pinkerton’s, Wathen’s task is to produce sufficient cash flow quickly from the merged company to pay what could be $10 million or more in debt service annually.

It is particularly important to restore Pinkerton’s to strong profitability and protect its reputation as a premier security company because Wathen plans to change the name of his entire security force to Pinkerton’s. However, he is not sure whether he will change the name of his holding company.

According to Wackenhut and others, Pinkerton’s recent problems reportedly stemmed largely from its aggressive attempt to increase its market share. Nothing wrong with that, except Pinkerton’s often priced its service below its cost simply to get the additional business, they said.

Pinkerton’s also has two other lines of business, private investigations--which the company was founded on--and mobile patrols. Wathen plans to keep both lines of business.

Wathen still must successfully merge two giant enterprises. Pinkerton’s has 30,000 employees in 158 offices in 42 states, Canada and Britain. CPP has 20,000 people in 115 offices in 38 states and Canada.

He said most CPP and Pinkerton offices are in the same cities, making it easier to merge staffs and reduce administrative snags. The merger will create economies of scale, he hopes, that will allow CPP to pull in 2 1/2 times its current revenue without incurring a huge jump in costs.

“The savings that will come out of combining the operations will make those operations all profitable,” Wathen said. “Not highly so, but at least reasonably so.”

Wathen--an amateur pilot who stands 6 feet, 3 inches, weighs 200 pounds and runs three miles a day--grew up along the Wabash River in Vincennes, Ind. He got a degree in police administration from Indiana University in 1951. But instead of joining a police force, he joined the Air Force as an investigator, checking military facilities for their vulnerability to thieves and spies.

“That was a fun job,” he recalled. “You got paid to go out and steal, or try to steal.” After seven years with the government, he held various security posts with North American Aviation, RCA and Mattel until 1963, when he joined CPP as general manager. At the time, it had 18 employees, and its revenue that year was a mere $163,000.

Within six months he bought the company when the owners decided CPP “was growing too fast for them,” Wathen said. “I bought a bankrupt company and didn’t even know it. That was the beginning of my business education.”

Wathen paid $60,000 for CPP and, over the next 17 years, CPP grew steadily. During the late 1960s and early 1970s, it expanded into other security fields, such as alarms, guard uniforms and special protection for executives. But most of the new enterprises flopped and were divested in the mid-1970s.

“I really wasn’t concentrating on the core business,” Wathen conceded.

By 1980, Wathen had 30 offices in seven states, but “would only open an office if we could make it profitable almost from Day 1,” he said. He realized CPP’s existing offices were generating enough cash flow after expenses to start more offices--if only CPP was willing to let those new offices operate at a loss at first.

Wathen decided he was willing to absorb the short-term losses in order to expand. The result: Between 1980 and 1984, CPP opened 104 offices in another 31 states and moved Wathen into the industry’s big leagues.

Wathen is cagey about his net worth, although he is listed on real estate records as owning at least five properties in Los Angeles County, including the company’s headquarters building in Van Nuys. But he does say he is worth more than $1 million.

But being the biggest in the business is not what seems of paramount importance. He originally forecast CPP’s 1987 revenue to reach $280 million, but has since cut that to $250 million. Wathen is dropping $48 million of business--mainly government agencies--that wanted CPP’s services too cheaply, he said.

Certainly CPP cannot absorb many losses now. Soon the company must start paying back the loans needed for the takeover. And it is worth noting that when Wathen described what it means to him to own Pinkerton’s, he said he felt “very responsible” to the people and traditions of Pinkerton’s--and to his banks.