PROVO, Utah — In the wake of a blockbuster deal to sell the majority stake of his company to a private equity firm for more than $2 billion, Vivint CEO Todd Pedersen tells SSI the agreement will allow the company to expand upon its technology-based platform, enter new markets more expeditiously and free up management to be “more thoughtful about what we are going to become in five years.”
Built on a summer sales model, Vivint provides connected smart home systems, including alarms, lighting controls and energy management, to more than 650,000 customers. The company bills itself as the largest home automation services company in North America, and the No. 2 residential security services provider in the United States as well as in Canada.
New York-based Blackstone Group LP purchased a majority share in the company from initial investors Goldman Sachs Group Inc., Jupiter Partners LLC and Peterson Partners LP. The transaction is expected to be completed by the end of the year. As part of the deal, Blackstone will also take over Vivint’s affiliates Vivint Solar and 2GIG Technologies, which provides panels and peripheral devices.
A new, larger credit facility was needed, in part, to fund Vivint’s plans to create a nationwide commercial division beginning in 2013, Pedersen says. “We intend to aggressively pursue that market. We feel we are uniquely capable of the sales and the installation on a nationwide basis. It will be a very big push of ours.”
Blackstone won out over Ares Management LLC and GTCR LLC, which owns Protection 1.
P1 CEO Tim Whall tells SSI while the price for Vivint was not surprising, industry observers should not compare the deal to a traditional security acquisition and not value it as a simple recurring revenue buy.
“There are three businesses involved in the transaction: a manufacturer, a solar panel business and a summer seller sales program. There were a lot of moving parts to this deal,” he says. “It’s a large organization and they have done a great job selling systems, growing in manufacturing and bringing to market future services such as solar energy.”
Michael Barnes, founding partner of consulting firm Barnes Associates, says Vivint’s selling price indicates a RMR multiple “something north of 60x,” which includes 2GIG and Vivint Solar. “[That is a very] aggressive price, and while only several deals have ever touched that price level, it is not unprecedented. What is unprecedented is a security alarm company growing from $0 to $34 million of RMR in six years, all through internal sales.”
Barnes also projects the valuation is unlikely to have a significant impact on the broader market as there are so few players of Vivint’s size, let alone those that can achieve comparable growth results.
“It meshes well, however, with the high valuation Monitronics [acquired by Ascent Media Corp. in 2010 for $1.2 billion] has continued to receive in the public markets, and what we expect the new ADT will trade at when it spins out from Tyco.”
Jeff Kessler, a managing director of Imperial Capital, says the deal underscores why installing security contractors can no longer take in RMR without trying to improve the customer’s value proposition. Not doing so risks a loss of market share and even a possibility of attrition rates. “It is clear now that good technology is driving a customer value proposition. Whether the customer is spending $25, $30 or even $75 a month, you have to be able to offer something to the customer that is better and more valuable to keep them as a customer and to keep that RMR flowing,” he says.
When gauging the price paid for Vivint, Kessler describes it as being “in line” with multiples seen since 2010 for deals such as Protection 1 being bought by GTCR, Securitas Direct by Bain Capital and Hellman & Friedman, Monitronics by Ascent Capital, CSG by Summit Partners, and Security Networks by Oak Hill Capital.
“All of these deals were done in the 40 to 62 multiples of RMR. All these deals were done between 10x and 13x the enterprise value,” he says.
To gauge a true picture of the metrics of an acquisition, Kessler factors what he terms “multiples of steady state cash flow.” The valuations Blackstone paid for Vivint — subtracting the value of Vivint Solar and 2GIG — results in an RMR multiple in the range of 50x and a steady state cash flow multiple toward the lower end of the 10x to 13x range noted above, according to Kessler. That is a multiple toward the bottom of the range, which has been 10x to 13x steady state cash flow, during the past 18 months, Kessler says.
For additional reporting on this story, click here.