ENGLEWOOD, Colo. — With the acquisition of home security solutions provider Security Networks, Monitronics will have more than 600 dealers and one million subscriber accounts once it closes the deal in August.
Ascent Capital Group, Monitronics’ parent company, announced Wednesday that the transaction will consist of $487.5 million of cash and 253,333 newly issued shares of Ascent Series A common stock with an agreed value of $20 million. The company based the purchase price, which is subject to adjustment at closing, on Security Networks delivering of $8.8 million in recurring monthly revenue.
“The transaction will be financed primarily with new debt at the Ascent and Monitronics levels, as well as an incremental amount of cash from Ascent’s balance sheet. We are confident we will successfully finance this transaction at attractive terms and provide compelling returns to our shareholders. We expect to launch our financing efforts this week,” Ascent CEO Bill Fitzgerald said during a press conference call on Wednesday.
Established in 2000 by Rich Perry, Security Networks of West Palm Beach, Fla., provides monitored security systems services to more than 195,000 residential and commercial customers. As of June 30, Security Networks reported acquisition RMR of $8.4 million (including approximately $100,000 of wholesale monitoring). The firm also reported having 2012 revenues of $78.5 million and adjusted EBITDA of $46.5 million.
Through its network of more than 225 dealer affiliates, Security networks initiated more than 61,000 accounts last year, Monitronics President and CEO Mike Haislip said during the call.
“Like Monitronics, Security Networks takes a disciplined approach to the underwriting practices, which has helped them create a high quality subscriber portfolio,” he said. “Today, the company subscriber base has an average credit score of 720 and life cycle attrition levels in line with Monitronics’ current portfolio.”
Haislip also noted that Security Networks has a newer, younger portfolio of subscribers who use interactive and home automation services, which also made the transaction ideal for the company.
At the completion of the transaction, the combined firms will operate out of Monitronics’ Dallas headquarters with Haislip serving as CEO. Because of the numerous similarities, Monitronics expects the merging of the two companies to go smoothly, as well as generate expense savings through operating synergies.
“We’ve estimated the synergies to be $4 million to $6 million,” Ascent CFO Mike Myers said during the conference call. “Obviously, as [Security Networks] grows, they’re going to have a higher fall through rate from their business model than their existing margins. That will improve, but it’s going to take some time.”