ADT’s DIY Play for LifeShield: Why Analysts Are Bullish on the Deal
Although the acquisition is not expected to move the revenue needle in the short term, industry insiders say ADT is wise to broaden its DIY portfolio.
BOCA RATON, Fla. — With the acquisition of DIY pioneer LifeShield, ADT (NYSE: ADT) has given notice to a fiercely competitive marketplace that it will vie for consumers who prefer to self-install smart home security systems.
The acquisition for around $25 million is not expected to move the revenue needle in the short term given the already behemoth size of ADT. As the nation’s largest residential security provider — with emerging commercial integration and cybersecurity divisions — the company has roughly $4.5 billion in revenue, a market cap of $6 billion and an enterprise value of roughly $15.5 billion.
“From a size perspective it’s not that meaningful,” said Imperial Capital Analyst Saliq Khan. “I don’t think this is going to be accretive to earnings or increase the company’s residential market share in the near term. But it does give them a chassis upon which they can build a much more meaningful and competitive DIY platform over a period of time.”
Khan estimates that LifeShield has a customer base that ranges between 30,000 to 35,000 subscribers that pay $30 to $40 per month, depending on a flexible monitoring service package. The company’s home security system can control various Z-Wave-enabled smart home devices including door locks, garage door openers, smart plugs and thermostats. It also supports IFTTT applets and Amazon Alexa voice commands.
“DIY is not just a point product technology. It is a standalone category that is here to stay. For me it’s really ADT saying DIY can be a meaningful product,” Khan said. “It allows them to be in a broader market with a differentiated customer base that may not want the traditional security product.”
George De Marco, chairman of the Electronic Security Expo (ESX), views the acquisition similarly, calling it “a smart move.”
“In other words, ADT will meet a segment of today’s consumer where they want to buy — online,” said De Marco, who is managing partner of DECO Ventures, a consulting firm. “I also see an opportunity for ADT to offer more concierge services where they provide installation as a service for customers that select what they want online, but also want access to pro-level installation assistance, supported through the web, phone or in person.”
Michael Barnes, founding partner of consulting firm Barnes Associates, said ADT had a number of options for entering the space and/or enhancing their own initial DIY efforts.
“LifeShield is interesting in that it is smaller than a number of their other acquisition opportunities. My guess is that this is indicative of their desire to have an easier time configuring the offering to their purposes, rather than stepping into a larger player’s shoes,” Barnes said. “I also think they were likely attracted to some of the technology LifeShield has.”
Founded in 2004, LifeShield claims to have designed the first wireless, self-installed home security offering. The company was acquired by DirecTV in 2013 for undisclosed terms and subsequently shuttered after DirecTV was acquired by AT&T in 2015. In 2017, LifeShield’s previous owner, Hawk Capital Partners, purchased the company back from DirecTV and began offering home security systems once again.
ADT joins an increasingly competitive field of DIY providers. Some of the more recognizable brands include SimpliSafe, Nest Secure, abode, Ring, Arlo, Link Interactive, Protect America, Brinks Home Security (with formerly-branded LiveWatch), among a raft of others.
“It will be interesting to see how the space evolves. Historically, product-oriented offerings have tended toward players that control the technology and platform, while service-oriented offerings generally stayed more flexible on what underlying products were used and supported,” Barnes explained.
As the DIY space evolves, and incorporates more associated services, Barnes said he will be keen to watch and see which model works best. All things considered, he believes the LifeShield deal positions ADT favorably: it gives them a nice foothold in the segment and some technology to work with, while at the same time they leverage existing relationships with industry manufacturers and suppliers to find the right configuration without making a huge upfront bet on one or the other.
Market Dynamics Highlight DIY Adoption
Among the driving forces behind increasing DIY consumer adoption is cost. Owning a security system can seem a luxury for consumers due to the associated monthly fees that may come with purchasing a system. In fact, for professionally monitored security, cost is the most commonly cited reason for canceling services, explains Dina Abdelrazik, a research analyst at Parks Associates.
“DIY security systems offer an opportunity for consumers to acquire a system at a lower cost. Most new self-installed security systems reduce the installed cost of security systems,” she said. “Parks Associates data find that consumers installing security systems themselves report that the leading motivator in installing the system was because it saved them money.”
Due to the nature of the DIY security model, traditional installing security contractors are carefully assessing how to break into the market. For security dealers to implement a DIY business model successfully, positioning a DIY system effectively alongside their professionally installed offerings will be critical in years to come, Abdelrazik said.
With the acquisition of LifeShield, ADT has signified the importance of offering DIY to broaden appeal to the roughly ~70% of broadband households that do not own a security system, Abdelrazik said. Parks Associates’ most recent security dealer survey indicates that 38% of dealers find that DIY security systems open up a path to a different customer segment, while 46% indicate that DIY is cutting into demand for professionally installed systems.
ADT’s acquisition illustrates a path to offering a DIY option as a pro-install alternative, Abdelrazik continued, as the market is increasingly shifting toward the growth of DIY security systems. Parks Associates estimates a roughly 16% compound annual growth rate for professionally monitored households that are self-installed vs. a ~1% CAGR for professionally monitored households that are pro-installed.
“Traditional security dealers that do not strategically plan for the impact of DIY will find themselves falling behind competition,” she said.
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