Winnipeg-based security personnel company Inner-Tec Security has been sold to Initial Security Services, a multinational security firm, producing a handsome profit for its owners including one of Manitoba's labour-sponsored venture capital funds.

The Crocus Investment Fund owned a majority stake in Inner-Tec and the fund's share of the proceeds of the sale of the national company will exceed $10 million. Its investment in the company was less than $3 million.

Inner-Tec has about 1,200 employees from Toronto to Victoria and about $25 million in annual sales. Initial Security's Canadian operations are almost four times as large as Inner-Tec's and operates in all the same markets. The deal is being characterized as a merger to clients of the two firms, an indication the two companies make a neat fit.

Inner-Tec was founded in Winnipeg in 1980 by a former Winnipeg police officer, Mike Menzies, who sold it to Imperial Parking in 1995 which, in turn, was acquired by a U.S. venture capital firm. Menzies and Crocus reacquired Inner-Tec in 1999.

"Our business model is to buy businesses, grow and develop them as financial investors and then sell them to strategic players who can pay more for them," James Umlah, chief investment officer of Crocus, said in an interview yesterday.

"As our portfolio matures, instead of two or three of these types of deals per year we will probably be doing four or five." Mike Schroeder, president of Initial Security Services North America, based in San Antonio, Tex., said his company was impressed by the superior management at Inner-Tec and was interested in the deal because it could work as a "bolt-on" addition to Initial's Canadian operations.

"We are always looking for acquisitions that are operating in the same markets we are in and give us the chance to increase our market share," Schroeder said in a telephone interview from Edmonton yesterday. "In addition Inner-Tec is in the same commercial and industrial markets that we are in."

Initial Security Services is part of the U.K.-based Rentokil Initial plc, a multi-national corporation in the pest control, cleaning and security business with $5 billion in annual revenue.

Menzies said Inner-Tec had about three years of good growth, touched off by the acquisition of a Toronto security firm in 2000.

"That gave Inner-Tec the ability to bid on more national accounts," Menzies said. "We were in five provinces and seven cities."

Menzies will continue to work with Initial for a number of months. He is also the principal of another company called Urban Auto Park, which manages 11 parking lots in Winnipeg on behalf of the Forks/North Portage Partnership. Commenting on the excellent return on its investment, Umlah said it is the kind of results the fund expects, just as it also expects to be victims of some failures.

"Just like we tell people on the occasion of the failures like Isobord and Westsun, this is what is supposed to happen," Umlah said.

As in many other industries, there is consolidation taking place in the security business and Umlah said Crocus and Menzies were approached by an interested buyer last year which prompted them to see if there was interest from any other parties.

He said that part of the Crocus model is to be able to sell to a strategic buyer at a time that will get the best price and also attempt to ensure the business will continue to grow in Manitoba with the new owners.

martin.cash@freepress.mb.ca