Shockwaves began rippling across the security industry landscape Monday evening when word broke Apollo Global Management could soon announce a multibillion bid for ADT Corp. Industry watchers didn’t have to wait long for confirmation of what is the biggest leveraged buyout thus far in 2016, and one of the biggest of its kind in recent years.
Left in the wake of Tuesday morning’s official unveiling of the near $7 billion transaction are myriad questions and curiosities about how the industry’s largest home security provider will be merged with Apollo’s two other recently acquired gems, Protection 1 and ASG Security. The combined company, led by P1 CEO Tim Whall, will reportedly generate annual revenue topping $4.2 billion.
Still more questions and interest in the transaction arise when considered in the wider context of what lasting impact the deal — and the combined company — is likely to have on the industry landscape. CE Pro sister publication Security Sales & Integration spoke with half a dozen industry stakeholders across the financial, M&A, integration and consultant professions, gathering insights and perspectives from all corners of the industry.
“We are definitely starting 2016 on a high note and I’m sure there is more to come. This transaction is further confirmation on how relevant private equity is to the security industry,” says Peter Giacalone, president of consultation firm Giacalone Associates. “If anyone didn’t know before — seeing how Apollo first structured the Protection 1-ASG Security transaction — and now without taking a breath acquiring the largest security company in the U.S., they do now.”
David Stang, founder and president of Stang Capital Advisory, said he wasn’t necessarily surprised by news of the merger since ADT’s stock price had been trading at an unfairly low price.
“Apollo recognized this and is taking advantage of a unique opportunity to combine P1 and ASG’s strong commercial business with ADT’s residential market dominance,” Stang said.
Overall, Stang said he believes the merger is good for the security industry. The purchase price reflects more fairly on the solid core value of companies in the industry, as evidenced by Ascent Capital’s strong stock price increase upon announcement of the ADT deal.
“The new ADT will certainly be a dominant player in the industry, but the consolidation of the three leading companies will also leave meaningful space for other companies to expand,” Stang said.
While acknowledging Apollo’s deal making for ADT is a seminal moment for the industry, PSA Security Network President/CEO Bill Bozeman is taking a measured approach when considering the future of the combined company and its impact in the marketplace.
“No doubt the deal is huge, but after the dust settles I do not feel it will be as earth shattering as many are already predicting,” Bozeman said. “Life in the security industry will go on. ADT was big, now they are bigger. P1 was big and now they are bigger. What really matters is will this consolidation make them a better company?”
Tim Whall would seem like an ideal executive to coordinate such a massive undertaking to merge P1, ADT and ASG Security, Bozeman said. But could the job be too big for even Whall’s capable hands?
“ADT led by Tim seems to make sense on the surface considering the great job he did turning P1 around. However, this deal is way too big for any one executive. The CEO will need to surround himself with the best and the brightest as they are in for one hell of a ride.”
Ron Davis, president of Davis Mergers & Acquisitions Group, said the mega deal didn’t surprise him in the least, nor that a private equity player consummated the transaction. The reasoning, he said, is simple.
“The landscape before a company that is so heavily leveraged into the residential market is rapidly changing. There are too many elements that could change within the reformatted management group at ADT,” Davis said. “This was a good opportunity for creating value for ADT shareholders and management team, they realized it, and took advantage of it.”
Davis views the merger as “extraordinarily good for the industry,” particularly for regional security companies that have been strategically focused on growing both through acquisition and organically. “It actually stabilizes the M&A portion of our industry and shows potential investors that the industry is vibrant, active and resilient,” he said.
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