Evaluating Tyco’s $2B Broadview Buy
IRVING, Texas — In its first significant acquisition in eight years, Tyco Int’l has agreed to purchase Broadview Security, formerly Brink’s Home Security, for $2 billion. The cash and stock transaction of $42.50 a share was unanimously approved by the boards of both companies.
Tyco said it would combine Broadview with its own ADT security business to create the industry’s largest player in residential and commercial security. The 1.3 million accounts of Broadview Security will be folded into ADT and added to the company’s 7.4 million current accounts in North America.
ADT’s North American residential and small business operation, which is the most comparable to Broadview, has 4.8 million recurring revenue accounts and revenue of $2.2 billion in fiscal 2009.
Sandra Jones, principal of Chardon, Ohio-based consultants Sandra Jones & Co., says the deal was not unexpected and speaks to the continuing appeal of recurring revenue-based businesses.
“One of the key drivers of separating Broadview from Brink’s was so the security monitoring business would become a pure play and attractive opportunity for acquisitions,” she tells SSI. “It was not a matter of if it would then be sold, but when, by whom and how much. Even in a down economy the value of RMR continues to fuel investment in this industry, and reinforces the need for systems integrators and security dealers to continually build RMR.”
It is estimated Tyco paid a multiple of approximately 47x recurring revenue for Broadview, which has the industry abuzz with speculation about what the amount will mean for the valuation of other dealer companies.
During a conference call with industry trade media, Naren Gursahaney, president of ADT Worldwide, stressed valuation “is an important and viable way of comparing transactions” but there are factors associated with the Broadview purchase in particular that are also an integral part of assessing this deal.
“These include operating synergies as well as some tax benefits that will impact Tyco overall,” Gursahaney said.“We are really acquiring three things. One, a high quality customer base that delivers solid recurring revenue; two, an account generation and service engine that adds to its customer base everyday; and three, the operational and tax synergies that I mentioned.”
Despite the value the nation’s No. 2 residential security provider will bring to Tyco/ADT, the price tag seems excessive “given current market conditions, economic environment and the latest 12-month performance of Broadview, ”Walter Bailey, managing partner of The EpiGroup LLC, a New York-based advisory, consulting and research firm, tells SSI. “Further, I believe there will be customers that attrite on a one-time basis due to change in ownership and such attrition could well drive the deal to above 50x RMR, which would be a nosebleed price in today’s landscape.”
With the market expected to remain highly fragmented, news of the mega deal is being viewed by many independent installing/monitoring contractors as mostly favorable.
“The Brink’s/Broadview people have been great citizens of our industry, as is ADT,” Bart Didden, president of USA Central Station Alarm in Port Chester, N.Y., tells SSI. “[Broadview] has a very strong alliance, respect and passion for supporting the industry trade associations. Both groups are great corporate citizens. This will not change.”
ADT should be mindful to fully leverage Broadview’s widely-respected management expertise and its technology, Didden says. “ADT has purchased a company with the most advanced monitoring software [SGS’ stages™] available to the industry today. If they abandon it to merge it into the ADT network of central stations, it will be their loss.”
As the economy improves, the market will see further aggressive consolidation, says Bill Bozeman, president and CEO of PSA Security Network. “This consolidation will, however, not endanger the independent security dealer. There will always be a place for the local independent electronic security provider regardless of how big ADT gets,” he says.
Ron Galippo, president of Palm Desert, Calif.-based Total Watch Security, an authorized Brink’s/Broadview dealer for eight years, says many program members are anxious about the consolidation but he remains optimistic about the future.
“As a dealer you have so many options to be an authorized dealer for many different companies with strong brands,” he says. “If you are a good company doing good business you should never have any fears of any change like this because we would be the ones to control our destiny.”
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