Control & Automation

Control4 Up 25% on First Day of IPO; How Did They Get There?

First pure-play home automation IPO, Control4, valued at over $500 million after first day of trading on Nasdaq. CEO Martin Plaehn takes us inside the whirlwind investor road show.


Control4 Up 25% on First Day of IPO; How Did They Get There?
Control4 founders Eric Smith and Will West flank CEO Martin Plaehn midday on August 2, 2013, the first day of trading for CTRL on Nasdaq.

Photos & Slideshow

Julie Jacobson · August 5, 2013

Control4 (Nasdaq: CTRL), arguably the first pure-play home automation IPO ever, started trading on the Nasdaq Friday, August 2, 2013.

Offering 4 million shares at $16 (before underwriting discounts), CTRL started the day at $19.81 and closed at $20.05, up 25.3% from the offer price. As Control4 only relinquished about 18% of the business to the public, valuation for the firm exceeded $500 million.

Not bad for a 10-year-old company with 2012 revenues of $109.5 and nary a profitable quarter (the first is expected to be this one, Q2 2013).

How did that happen?

How do you sell a bunch of investors on a company and an industry they’ve never heard of? That was the challenge of Control4 CEO Martin Plaehn on the eve the company’s IPO – convincing the money guys that the home automation business is viable and that Control4 is a good bet.

RELATED: Valuing a Home Automation Company

I sat down with Plaehn at Nasdaq on Friday, the first day of trading for CTRL. He says that potential investors may not have known much about this home automation thing, but “one thing was always clear to them: The world is connected and it’s going to be more connected. It’s happening.”

At the same time, they understood that all this connectivity is and will be “chaotic,” says Plaehn.

What really got their attention, he explains, is “when we described how we pull all of these heterogeneous pieces together in a way that works.”

Unlike all of the super-hyped home-automation devices from the past year or two – Nest thermostats, Philips Hue smart bulbs, Belkin Wemo, Smartthings, Lowe’s Iris and the like – Control4 has a long and steady history in the home control business with some 2,800 active dealers and 120,000 residential installs.

Control4 advertisement in Times Square

From there, says Plaehn, investors saw the possibility of scaling the business to millions of households.

“I think people hear Internet of Things, but it’s pretty abstract,” Plaehn says. “We made it pretty tangible for them [investors].”

Of the 150ish meetings Control4 had with investors, Plaehn says, “None of them were snarky, none were antagonistic. Nobody said, ‘I don’t get it.’ There was none of that.”

In fact, Control4 was 10x oversubscribed for the IPO after its whirlwind road show, he says.

Selling the Custom Installation Channel


To believe in the long-term success of Control4 (and its competitors), you must believe in the professional installation channel, which is little known beyond our industry.

Many of the investors were surprised to learn of a vibrant custom installation channel that numbers in the tens of thousands when you count security dealers and electrical contractors who are adding home automation to their repertoire.

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HOW CONTROL4 BEGAN
Control4 founders Will West and Eric Smith promised in 2004 that the company “ought to be a launch that really hasn’t been rivaled by anything.” Read how it all began.

Plaehn says it was pretty easy to convince potential investors of the long-term viability of the channel – it is not unlike other local installer networks specializing in plumbing, security, major appliances, HVAC, irrigation, garage doors and other disciplines.

Likewise, Plaehn deflected concerns that DIY home automation would make professionally installed systems irrelevant: “I just asked them, ‘Did you install your plumbing? Your washer and dryer? Your security system? Are you comfortable switching out a light? How complicated are those things?’”

Plaehn explains that whole-house control is “going to be through a professional network for some time. We don’t think it’s going away.”

He adds, “DIY is always going to be a part of it, but it’s not going to replace it.”

So the nagging question remains: You know how to find a local plumber. How do you find a local home automation installer?

“That is the march of the industry,” Plaehn concedes, adding that Control4 has been working on that very thing.

Is Control4 for the Masses?


Control4 may be one of the more affordable home entertainment and automation systems on the market, but a decent system with universal remote control for the A/V set-up and modest automation features still costs $3,000 and up.

Is that cheap enough for the mass market?

Plaehn says roughly 45 percent of Control4 customers have household incomes of $100,000 to $250,000. Some 13 percent have household incomes of less than $100,000.

“Our entry-level controller [HC-250] is $750 MSRP,” Plaehn says. “It comes with smart-phone software for the entire family. If you have devices in the home today that you could communicate with, chances are we have the drivers for that. For about $1,000—maybe $1,200 – you’re in the game.” [HC-250 launched at $599 but Control4 later upped the price when it added new services.]

Those prices don’t include labor, though.

Is that really mainstream, though? If it isn’t now, says Plaehn, then it will be down the line, once the industry achieves “velocity” and dealers increase efficiency.

Bottom line – literally – is that Control4 is on a nice path in a growing industry and investors seem to believe it.

“We’re growing predictably,” Plaehn says. “We’re not burning cash. We know what we’re doing. We’re continuing to improve. We’ll start doing more and more to increase awareness and drive the brand.”

RELATED:
Why Control4 IPO is Significant to Home Systems Integrators



  About the Author

Julie Jacobson, recipient of the 2014 CEA TechHome Leadership Award, is co-founder of EH Publishing, producer of CE Pro, Electronic House, Commercial Integrator, Security Sales and other leading technology publications. She currently spends most of her time writing for CE Pro in the areas of home automation, security, networked A/V and the business of home systems integration. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, earned an MBA from the University of Texas at Austin, and has never taken a journalism class in her life. She's a washed-up Ultimate Frisbee player currently residing in Carlsbad, Calif. Email Julie at [email protected]

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