BUILDING COMPUDYNE

The global security firm CompuDyne is one of the biggest and most successful security
companies in the world, which produces prison equipment and surveillance gear and helps protect
government buildings against terrorism. After the 1998 bombings of two U.S. embassies in Africa,
CompuDyne’s business supplying blast-resistant windows and doors to most of the embassies around the
world doubled. After the terrorist attack on the U.S.S. Cole in 2000, the company was hired to provide
shoreline protection for the U.S. Navy and Air Force. And following the attacks on the World Trade
Center and the Pentagon on September 11, 2001, CompuDyne started fielding calls from federal and state
government agencies around the country asking for help in protecting “at-risk assets” like nuclear power
plants.
Security companies are doing very well right now, but CompuDyne is doing better than most. It
has posted consistent growth over the last five years. Considered the industry leader in the market for
physical and electronic security, the company took in $141 million in revenues in 2005, compared to
$127 million in revenues in 2001. That performance becomes even more impressive when you consider
that the company was near bankruptcy in 1995. CompuDyne was founded as a defense contractor back in
the early 1950s. For decades, it stuck mostly to security projects, but in the 1980s, when big
conglomerates like Gulf & Western were popular, the company’s management made an ill-fated attempt
to branch off into new businesses. Some of the choices weren’t entirely inane, like a home-improvement
division, but others were, billboards and plastic extrusion. The diversification strategy turned out to be a
disaster. By 1995, the loss of focus had combined with some management missteps had driven revenues
down to just $12 million, and book value was literally zero.
In large part, the credit for CompuDyne’s resurgence goes to Marty Roenigk. A former
investment executive at Travelers, he took over the company in 1995, streamlined its operations, made a
series of strategic acquisitions, and encouraged the discovery of new technologies that could fight new
threats. Some of the company’s recent success is undoubtedly due to being in the right business at the
right time, but the better part goes to Roenigk’s ability to figure out a simple strategy and execute it
extremely well.
Roenigk owned a private manufacturer called MicroAssembly Systems, which made tiny screws
originally used to assemble cameras. Roenigk had built the company to about $1.6 million in revenues
and had deals with AT&T and Hewlett-Packard when a stockbroker told him about CompuDyne. Roenigk
saw an opportunity to fold his small company into something much bigger. MicroAssembly had a core
strategy and a good balance sheet, while CompuDyne was an ugly collection of assets that didn’t belong
together. In a reverse merger—a deal in which a bigger company buys a smaller one but the smaller
company retains control—Roenigk took over. He immediately got rid of the management team and sold
off everything not related to security (including his old company.)
After he sold off all the unrelated pieces, Roenigk started shopping for new ones that would fit
better. CompuDyne’s first purchase was a firm that sold electronic security systems for prisons. Roenigk
also wanted to buy Norment Industries, a company that made bullet- and blast-resistant products as well
as prison locks and doors. He spent about two years lobbying for the deal, finally closing it in late 1998.
After each deal, Roenigk was smart enough to leave the new divisions mostly intact.
 With lingering terrorism fears, CompuDyne enjoyed a surging demand for its security products.
In January 2004 the firm secured Army and Navy orders for security bollards and pop-up barriers that
sent its stock up 14%. But the company’s financial position has recently deteriorated. CompuDyne
reported a “sharp curtailment” of prison and jail construction contracts. For 2005 the company reported a
loss of $8.2 million.
Although most of its business is still in the nuts and bolts of security, such as blast-proof doors
and pop-up barriers, the company has continued to bolster its work in security software. It recently
acquired 90 Degrees and its emergency medical information software for public safety agencies. i
(www.compudyne.com)

discussion questions for bonus case 5-1

1. What does this case teach you about finding opportunities for forming your own business?

2. Is being at the right place at the right time an accident, or are some people more clever than others
at being in the right place at the right time?

3. What does this case teach you about making the most of a bad thing?
i
Sources: Carlye Adler, “Safe and Sound,” Fortune Small Business, July/August 2002, pp. 46-49; “CompuDyne
Corporation,” Washington Post Company, www.washingtonpost.com, 2005 and “DefenseWeb’s Strong Q2 Results Driven
by New Contract Wins, Partnership Agreements with Industry Leaders,” Freshnews.com/San Diego/Orange County, July
17, 2006.