ADT Acquires Red Hawk, Becomes Billion Dollar Commercial Business

By Dan Gelinas, Published Oct 25, 2018, 11:55am EDT

With its ~7th commercial acquisition in the past year, ADT is transforming itself from a residential provider to a commercial player with now more than a billion dollars of annual commercial sales.

ADT has announced [link no longer available] it will acquire Red Hawk Fire & Security for $317.5 million in a move which fundamentally changes the direction of the company and "accelerates its growth."

adt acquires red hawk 1

Does the acquisition make sense, given ADT's residential core? How will this purchase and ADT's continued shifting in focus affect the industry?

Inside this note we look at:

  • Financials of the Deal
  • Strategy for ADT
  • Former Acquisitions
  • Commentary from industry experts including John Brady and Peter Giacalone
  • Effect on the Industry
  • Possible Problems

Financials ** *** ****

*** ** ****** $***.* million *** *** ****, which ** ******** ** bring ** $*** ******* in ******* *** ****:

*** *********** **** ******* ADT's ******* ******** ********* and ***** ** ******** them ****** **** **** commercial *********** *** ****. These *** ***** **** industry ********* ******* **** Brady *** ***** ********* say *** *** **** wanting ** ******** ***** *** **** split******'* ********** ***-*******.

*** *********** ** ******* in **** ***********' *********** ** ******* in ****.

Billion ****** ********** 

***********, ***, * $* billion *******, **** *** acquisition ****** *** ******** total ** ********** ******** revenue *** *** ** 25% ** *** ***** revenue, ******* *** ** now * $* ******* player ** *** ********** space:

Commerical '******' *** ***

*** **** *** ********** side ** * "******" of ***** ******** ***** forward:

*** *** **** ** an *********** ****, **** several ************ ***** ** Red ****.

Other ************

** ******** ** *** Hawk, *** *** **** acquired:

** ** ***** ****** that *** **** *** also **** ** *********** mode ******:

*** ** ***'* ************ are ****** ** ****** to **** ** **** to ** *** **** it ***** ** ** again, ********* ** *******.

Return *** **** ****

******** ********* ******* **** Brady [**** ** ****** available] ***** ************* ***** ********* [**** no ****** *********] *********** *************** **** **** ***** the ***********.

***** **** *** ******** of *** **** *** a "************" ** **** ADT *** ****** **** split **** ****:

**’* * ************ ** what **** ******* ** do *** ****** *** **** hold ****** *** ****. When *** ***** ****** off *** **** *** residential ********, **** *** a ****** **** **** couldn’t ** ** *** commercial ***. ** *** [Whall] *** *** **** immediately ******* ** ****** into *** ***** ********** as **** ** **** could. **** ****** *** a *** ******** ******* activity. ****’** **** ******* hard ** ****** *** integrated *******, *** *** Hawk ** * ********** opportunity ** *** **** into ****.

********* ******, ****** *** ******** was *** * ********:

**** ***’* *** ******* in ********** *** ****, they ********* ** **** to ****** **** **** commercial. **** ***’* ****** breaking ****. **** ** who **** **** ** one ****. * *** waiting *** ********* **** this ** ******. ** makes ***** ***** ** them. **** **** ** expand ***** ********* *** Red **** ** * respectable ********** **********. ********** is ***** *** ** from *** **’* ***** they **** ** ** back **. **** ** something ****—****** ** *** Red **** ** ****** else—was ***** ** ******. It’s * **** ***** move *** ***. * think ****’** ***** * good ***. ***** ***** hasn’t ********* ****, *** I ***** *** [*****] has **** * **** job. * ***** **** is * **** ****** move *** **** **** they *** ** ** to ***** **** **** to ***** * ****** commercial ********.

***** **** ****** *** that ** ** ********** to *** **** *** Hawk ** * ****** commercial **** **********:

**** ** * ****** big **** **** ************ what ****’** **** ****** to ** * ****** faster **** **** ***** have ****, *********. ** doesn’t **** **** **’* a **** ***** *******, too. **** *** ** happen, **’* **********, **'* got *** *** ****** it. *** *** *******, you *** ***** *** inspections. *** **** *** done ****** **** ****** the ******* **** **.

*** ** **** *** business ** ********* *** says **** ***** ****-**** financial ********:

Effect ** *** ********

*** **** *** ** a **** ********** ****** in **** *** *********** and ********** **** *** security ******, ********* ** Brady:

*** ****’** **** *** will ** * *********** player.

***** ******* ** *** industry *** ******* * hard *** ***** ****'* ********** ******,********** **********. *** ** *** Hawk's ********--********* ** ~**,***--*** currently ********* ** **********. It *** ** ******* that **** **** *** move ** ***. ******* tell **** **** ********** has ******* ***-*** ******** monitored ********.

Possible ********

***** *** ********* ******* we ***** **** ***** the *********** ** * good ****, **** ******* John ******** [**** ** longer *********] ******* *********: 

(*) *** ****** ***** on ******* *** ******* residential ***** ********** **********. By *********** ************ **** from ***********, **** **** make ** **** ********* to ******* ** **** fronts **** ********* **********, i.e., *********** ** **********. 

(*) *** ** ********* companies ** * ***** (commercial ***********) **** ****** valuations *** ****** ********** capabilities **** ***** ********** core (***********). ****, ******* of ****-*******, ***** ** no **** **** *** **** can ** * ******** commercial ********** ********. ** reads **** ** * desperation **** **** **** cannot ***** *** *********** threat ** **** **** downshift **** * ************ financially ****** *****.

(*) *********** *** ***** various *********** (********* *** Hawk *** *** ******** numerous *********** ****** ** the **** * *****) will ** *********** ** they **** ******* *******, cultures, ********* *******, ***. 

Vote / ****

Comments (18)

RedHawk was acquired by UTC and the returned to the owners at some point in the last 10 years

UTC probably saw little value in a lower margin business

 

 

 

 

 

 

 

 

 

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Smart. 

Residential is a loser for ADT. Big Blue can leverage their brand recognition as a way to bring medium and large commercial accounts, and acquiring people who actually know what they're doing allows them to mitigate their two biggest weaknesses, poor install quality and worse customer service. ADT salespeople and Red Hawk operations managers, systems designers, and technicians might make things very uncomfortable for JCI, Seimens, or Vector.

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Residential is a loser for ADT.

So the thing that is 75% of their business and what they are #1 in the market for is a loser? I am not even saying I disagree but that's a pretty brutal position to be in.

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If you were the national leader in a dying sector, you’d aggressively expand into a more profitable sector too. 

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Has ADT told its investors that they lead a 'dying sector'? :)

I still find it wild that commercial integration is where the residential guys want to go. It's such a 180 from just a few years ago where the clear big money was in residential contracts.

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Has ADT told its investors that they lead a 'dying sector'? :)

Hey, optimism isn't technically illegal. 

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To be fair the chances of large commercial organizations hanging their own IDS and Fire purchased from Amazon are pretty slim.  I can say that we would not consider using any of the products that are causing ADT issues in our commercial locations.  It would make sense to diversify into a more profitable industry but what would that be for ADT who has historically focused on IDS and fire?  Especially as a public company it would be hard to convince investors ADT could succeed in another completely unrelated industry.

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We believe the SEC is still looking at ADT/Apollo disclosure documents from the January IPO. Much was Not said about the big hole in security “expectations” of millions of their “deterrent” security alarm customers (slow, no police response). Mostly residential. Much attrition and litigation expected. So a rush to high-end commercial “defensive” customers, and push into PULSE Witness makes good sense (higher priority police response). Yes, ADT could again be a recognized leader, but after they prepare their garbage for pickup, which could push their stock into double digits.

Source: Lee Jones; Support Services Group

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Lee, 

Your comment is a bit scattered with a lot of assertions and no hint of evidence. I'm not saying you're wrong but, it would be interesting to know the following.

Who is the "we" that believes the SEC is "still" looking into the ADT/Apollo acquisition...and, do you have any support for this belief?

Do you have any support for the "slow, no police response" comment?

Thank you!

 

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Now, how overall how do they compare in the Commercial space to Convergint?

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Good point / question.

ADT and Convergint are now about the same size. No Gopher for ADT...

But in all seriousness, yes, ADT is now a really big commercial integrator. Related: Convergint Acquisitions Reshaping Integrator Market

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Running a commercial business will have a significant impact on their balance sheet and change related metrics from what they are accustomed to. They will need to take on new debt to finance the acquisition based on Q2 results and fund the change in inventory, WIP and AR. This will also muddy their GP% with the mix of these two separate businesses. It will be interesting how they will spin this at their next quarterly results.

Still see quarter after quarter of large losses -10% of sales. One would think it prudent to get the core business fixed before taking on something they lack expertise (assuming staff previously involved in commercial left with Tyco/JCI). They should hold off transferring the monitoring accounts until they swallow this acquisition.  

Will they start reporting their sales from commercial sales and GP separate from their core residential business?

Any idea who else was in the running who failed to secure this acquisition?

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You might want to change the ACTi Communications, Inc. in January 2018 to ATCi Communications.

 

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Thank you, Sean.

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Setting up for Amazon takeover of ADT residential businesses by Q1 of 2019...

Buried in debt ($10B) w/ a now rising interest rates environment spells no way out for this poorly managed legacy company...📉

 

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I'm wondering how was P1 performing in the large commercial IDS and Fire business before the Apollo purchase and subsequent "acquisition" of ADT? I have to believe that the P1 team is managing the entire business under the ADT name and we are more likely to see a business that is modeled after how Tim ran P1 than how ADT has traditionally conducted business.  I am surprised to see so many acquisitions is such a short period of time, that's a lot of ingredients into one soup!  Are they done or are there more acquisitions on the horizon? 

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ADT also just announced the acquisition of Advanced Cabling Systems of Little Rock, AR. Advanced also has offices in Lowell, AR, Tulsa and Oklahoma City, OK, and Ozark MO. Advanced specializes in "the installation and service of integrated systems including structured cabling, fire alarm systems, audio/video, CCTV, access control, intrusion detection, intercom/paging systems, nurse call, and infant protection systems."

“The addition of Advanced is part of our focus on commercial growth,"ADT Commercial Executive Vice President Dan Bresingham said in the release. "[This acquisition] underscores both ADT’s and Red Hawk’s focus on leveraging technology to deliver superior customer service and support to commercial and enterprise-level organizations, particularly those with multiple U.S. locations."

A report from SDM claims Advanced has $27 million in revenue in 2017.

 

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ADT announced their 'ADT Commercial Brand' at ISC West and released this 1-minute marketing video:

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