ADT Merges With Protection 1 In $15 Billion DealBy John Honovich, Published on Feb 16, 2016
The ADT brand, though, is staying, as they note "the combined company will operate primarily under the ADT brand."
Price Premium / Stock
On the positive side for ADT, they are being acquired at a substantial premium of ~56% of their current stock price. However, ADT's stock price has languished for the past few years, trading at a low prior to the deal, as shown in the stock chart below:
Going After Commercial
Combined, ADT and Protection 1 project annual revenues of more than $4 billion USD, ADT alone does ~$3.5 billion. Beyond the simple scale of the combined two companies, one stated goal is to expand ADT beyond residential into commercial sales, with the claim:
"Protection 1’s robust commercial presence will speed ADT’s expansion into the commercial sector supported by increasing commercial sales and technical skills across a well matched national footprint."
The interview below is relevant as Protection 1's CEO (the soon to be ADT CEO as well) talks about their focus on commercial and the challenges for ADT:
Also, in the interview, P1's CEO talks about ADT's much higher attrition than theirs, a metric we would assume they would work on improving once they assimilate ADT.
To do the deal, the parent company, Apollo and its co-investors are raising almost $5 billion in debt, in addition to the ~$4 billion in existing debt that will remain (i.e., "ADT’s remaining $3.750 billion of total senior unsecured notes will be guaranteed by Protection 1").
As such, this is a highly leveraged transaction, increasing the risk if the combined company's performance or the security market declined.
Reduce Personnel / Offices
Both ADT and P1 have substantial branch office networks throughout North America. The consolidation of these offices and reduction of staff / expenses could be a significant profit generator for the combined entity.
The DIY Risk
The most fundamental risk is the growth of the DIY market. On the plus side, the intrusion market has historically been the 'best' financial performer of the security industry, given its long contracts and RMR generation. The challenge is that many startups have seen the profits, the antiquated high touch, high cost sales model of the intrusion market and have targeted this segment with DIY alternatives. Especially in the lower end, companies like Simplisafe (see our test results) and Scout (see our test results) have competitive options.
A key question will be how well ADT / P1 can continue growing the high end market vs the potential decline in the low to mid parts of the market.
Finally, it will be interesting if P1 (their CEO will run both) can improve ADT and its poor reputation with customers. Simple operational and customer improvements could make a material difference in the financial performance / market positioning.