Confidence and Innovation Build a Global Firm

There’s no name on the door of the Pasadena building that’s headquarters for one of the smartest, fastest-growing, most successful companies in Southern California.

The anonymity is due to the work the company does. Inter-Con Security Systems supplies guards and sophisticated monitoring and alarm systems to U.S. and foreign embassies in Latin America, Europe and Africa, and to institutions such as Kaiser hospitals, Qualcomm Stadium and the Los Angeles County Museum of Art.

Inter-Con protects businesspeople and government installations against the dangers of our time, from terrorism to massive liability lawsuits. It’s a growth industry these days. In 1990 the combined U.S. and international market for security guards and surveillance systems was $52 billion, says Enrique “Rick” Hernandez Jr., president of Inter-Con. Last year the market had grown to $90 billion, and “it will break $100 billion this year,” Hernandez says.

Behind that growth are not only kidnappings of businesspeople in Mexico and Colombia but rising drug-related lawlessness in once inviolable Switzerland and growing fears of crime among the American middle class.

The bigger story is Inter-Con itself--a capable and confident firm that outpaces far larger and older rivals. Inter-Con has always been more than a simple rent-a-cop service from its earliest contracts in the 1970s, when it devised security systems for NASA laboratories.

Inter-Con has grown globally since then, with almost $500 million in annual revenue. Yet it is still a family company, owned by Enrique “Hank” Hernandez, 68, a onetime Los Angeles police lieutenant, and his two sons Rick and Roland.

The company is growing 20% a year, has no debt and is very profitable, says Rick Hernandez, 43, a Harvard-trained lawyer who runs the firm day to day. He doesn’t disclose profit figures, but financial experts say Inter-Con’s returns on revenue and capital are many times those of larger firms with better-known names, such as Wackenhut, Pinkerton’s and Borg-Warner Security.

In fact, Inter-Con has tried to acquire one or more of those larger companies. It approached Pinkerton’s before the Encino-based security firm with $1 billion in revenue was acquired in March by Securitas of Sweden.

Inter-Con also has made an investment in Borg-Warner Security, the $1.3-billion company that has been paying off debt and restructuring operations. Inter-Con would like to acquire Borg-Warner, but Hernandez recognizes that the Chicago-based company has just appointed a new chief executive, is embarking on an expansion program and would not welcome an acquisition bid now.

It looks as if Inter-Con, which now has 16,000 employees, will be going it alone for some time yet. “The acquisitions would have changed our lives. They would have made us a company with over 100,000 employees,” says Rick Hernandez. “So we’ll just have to go on growing the business as we have been doing.”

But what drove Inter-Con to even think of acquiring companies more than twice its size? Opportunity and confidence, among other reasons. Through acquisition the company could quickly attain the employee base to bid for worldwide contracts from large corporations. “No company has true worldwide capability today,” Hernandez says.

Inter-Con is confident it can do the global job because its competitors have let opportunity slip. In a growing business, neither Pinkerton’s nor Borg-Warner has been growing in revenue or profit. Their returns on invested capital of less than 10% reflected inefficient operations that cried out for restructuring. Both had relatively low stock prices that made them candidates for acquisition. Indeed, Securitas, by paying almost $400 million for Pinkerton’s, has lifted stock values for the whole industry.

Inter-Con may still make a deal with someone--another private firm or Wackenhut or even Securitas because it has both the ability and a need to grow larger. “The company employs managerial talent capable of running a multibillion-dollar firm,” says John Simpson, a partner in Wasserstein Perella, the investment bank that represents Inter-Con.

Inter-Con began in the mind of Hank Hernandez in the 1960s when he was lent by the LAPD to the Justice Department, which wanted a bilingual police official to train South American police forces in mob control. Communist-led demonstrations had attacked U.S. embassies and even the motorcade of Vice President Richard Nixon in the 1950s.

Hernandez learned that in Latin America, middle- and upper-class citizens required security for their everyday existence. He integrated ways of providing protection, employing cameras and electronics as well as guards.

He brought that lesson home to America when he founded Inter-Con in 1973, after retiring from the Los Angeles Police Department at age 41.

The security business in those days, Rick Hernandez explains, consisted of firms that provided guard services, others that sold alarms and still others that installed closed-circuit TV cameras. “Everyone wanted to sell you more of what they had,” Hernandez says.

But Inter-Con did things differently. For its first contract with NASA, it increased security for laboratories not by adding guards but by reducing the number of entrances to buildings. Inside, it installed unobtrusive electronic sensors that would not disturb scientists working there.

The company won other contracts, and lost some and survived the usual brushes with bankruptcy typical of small companies. And in the 1980s, Inter-Con developed a method of going after new customers by using information.

“We wanted to enter the hospital-protection industry,” recalls Rick Hernandez, who joined the firm in 1983. “So we put business school graduates to work studying patterns of crimes at local hospitals”--infant abductions, violence in emergency rooms, thefts of drugs and other grim realities of modern life.

Then Inter-Con used the information to devise specific security models for hospitals. It won contracts from the Kaiser Permanente system, and “we are now the largest provider of hospital security in the nation,” Hernandez says.

The company has developed training for security guards, who supplement U.S. Marines in protecting U.S. embassies in Latin America. And the impression made by Inter-Con guards has led to contracts to protect embassies of Japan, Britain and other countries, as well as personnel and facilities of private companies.

Demand from private companies is driving the security industry’s growth today. Companies are aware that kidnappings of businesspeople are rising around the world, as are attacks on symbols of the U.S., whether private companies or diplomatic missions. “Companies want to contract with a single security provider for worldwide security,” says analyst Jeff Hoskins of SunTrust Equitable Securities, a Nashville affiliate of Atlanta’s SunTrust Banks.

Companies, in short, are seeing what Hank Hernandez saw three decades ago in Latin America: that security is more than a matter of posting a guard so as to qualify for lower rates on property insurance.

For customers, security is becoming a valued service. For providers, it is no longer a low-profit, routine one. As part of its restructuring, Borg-Warner Security resigned a contract from General Motors because the rates were too low to allow a profit, notes analyst Gary Prestopino of Cleary Gull Reiland & McDevitt, a Chicago-based regional investment firm.

Such trends favor Inter-Con, which never “goes after business by bidding too low,” says Rick Hernandez.

Sadly, Hernandez says, the trend in America of a less lawful, less civil society also benefits his business. “With middle-class people retreating into more gated communities, with more divisions in society, I see more characteristics of Latin America emerging here,” he says.

So Inter-Con will grow. And along the way, either by acquisition of another company or by going public to create a tradable stock for employee options and estate purposes, Inter-Con will become less of an anonymous family company--but no less of a shrewd, tough competitor.

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James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.