Home security provider Scout Security (ASX: SCT) has unveiled “material progress” in its strategic partnership with Prosegur Global Alarmas, a subsidiary of Madrid-listed multinational security company Prosegur Compañia de Seguridad (BME: PSG).
In a parallel announcement, Scout also unveiled a $2 million capital raising in the form of a convertible note facility via Gleneagle Securities.
Scout and Prosegur first penned their deal back in December 2018 and have now adjusted commercial terms by signing a five-year commercial agreement to continue their business relationship.
For over a year, the two parties have remained passive in integrating Scout’s technology, but with commercialisation of the partnership now imminent, Scout co-founder and chief executive officer Dan Roberts said he expects the deal to boost Scout’s base of active users and “deliver growth in upfront and recurring revenue.”
Moreover, Scout stated the agreement “serves as the basis for Scout to transform into a global company”, backed by the resources of a multibillion-dollar security giant.
According to the terms of the amended deal, Prosegur will pay Scout US$500,000 (A$728,000) to fund customisation and white label its proprietary platform with Prosegur-owned brands, in a bid to roll out a global expansion strategy into 26 different countries.
Scout confirmed that branding rights will have territorial limitations with the United States excluded from the licence. However, Prosegur will retain exclusivity in select territories where it has developed significant brand equity.
For the time being, Prosegur has been granted exclusivity in several Latin American and European countries with arrangements ensuring Prosegur can expand its services within its core markets, while also incentivising the company to accelerate monetisation in other lucrative territories.
In a statement to the market, Scout declared that in liaison with Prosegur, the pair has selected their initial launch market and will now proceed with commercialisation activities ahead of an expected launch later this year.
Both parties have defined an international go-to-market strategy and plan to schedule the launch of innovative new security solutions in Prosegur’s footprint.
According to Scout, its proprietary hardware and software will power Prosegur’s products, and in return, it will benefit from Prosegur’s depth of experience, leadership and extensive distribution capability in the residential and professional security markets.
“We are incredibly excited to commence the commercial rollout efforts with Prosegur, a key partner and stakeholder. The Scout team has been striving towards becoming a global company operating at global scale and this is a major milestone on the road to reaching those goals,” Mr Roberts said.
“Scout and Prosegur have developed a close working relationship since Prosegur invested in Scout in December 2018, which has allowed us to refine a mutually beneficial strategy.”
“Now that we have line of sight on new international rollouts in cooperation with and backed by Prosegur, we are excited for what the future holds for the growth of our smart home security solutions,” he added.
For working capital purposes and to complete its intended expansion ambitions, Scout plans to raise $2 million via a convertible note facility offered to institutional investors.
“The capital we have raised through this process will empower us to accelerate our work programs with multiple white label partners and execute our global expansion strategy in collaboration with Prosegur,” Mr Roberts said.
He explained the capital raise allows Scout to minimise its interest expenses by providing a flexible capital pool for its disposal. Upon completion, Scout said it intends to draw $750,000 as an initial instalment at completion and will retain the remaining $1.25 million for future requirements.
According to Mr Roberts, the note is “unsecured, at an attractive interest rate and doesn’t restrict us from raising additional debt or equity”.
“We are pleased to have struck the note’s initial conversion price at $0.07, being a significant premium to our recent share price.”
“We believe the note serves to minimise dilution, whilst we retain maximum funding flexibility,” he added.
More broadly, Scout is currently experiencing a significant uptick in demand for home security apparatus, due to the COVID-19 pandemic and the associated anxieties it has caused for millions of people forced to shelter at home.
The ongoing trend has also boosted demand for Scout’s white label offerings, as service-based and retail-focused organisations are increasingly seeking to diversify away from direct sales.
“Generally speaking, home security as a category outperforms during times of uncertainty and recession,” Mr Roberts said.
“As companies see the value in a work-from-home atmosphere and consumers continue to socially distance themselves, the company anticipates that the customer behaviour changes we have seen in the June quarter will have staying power and continue to benefit the self-installed security market well into the future,” he added.