ADT Buys Devcon for $148.5M, Strengthens HOA Niche

BOCA RATON, Fla. — In its first deal since spinning off from Tyco Int’l last year, ADT announced this week that it will acquire Devcon Security for $148.5 million, in a deal that will bring in 117,000 accounts and $3.6 million in recurring monthly revenue (RMR).

Established in 2004, as the integration of four independent security companies, Hollywood, Fla.-based Devcon Security operates in South Florida, New York and Utah. Acquired by San Francisco-based turnaround specialist Golden Gate Capital in 2009, the firm has two central stations — one in Staten Island, N.Y., and the other in Hollywood, Fla.

Some of the qualities that appealed to ADT were Devcon’s growth and low attrition rates, ADT CEO Naren Gursahaney said during an investor call on Wednesday.

“[Devcon] has been growing nicely, and they have a very attractive customer base, both on traditional residential, where their attrition rates were modestly better than the ADT rates,” he said. “Overall, the attrition rate of that portfolio is better than the average of ADT today.”

Some analysts, such as Peter Giacalone, president of Giacalone Associates LLC, an independent security consulting firm, expected the deal to produce greater numbers.

“With the numbers they disclosed, you would expect a deal of that size to maybe trade at a higher rate,” Giacalone tells SSI. “But I think there are probably a few unique characteristics of the Devcon portfolio that poised ADT to be able to bargain at the price they did.”

One of those factors could have been that Devcon is much more streamlined than it was several years ago, according to Sandy Jones, principal of consulting and business support services provider Sandra Jones & Co.

“It’s better managed and has good people, ergo their lower attrition rates,” she tells SSI.

Jeff Kessler, managing director at Imperial Capital, which advised Devcon on the transaction, agrees that the deal will benefit ADT, noting that the firm will see a 2% increase in its subscriber base and a 1.4% increase in RMR.

“I believe this transaction can bring more than that to ADT because the average annual RPU [revenue per user] of Devcon is in the low $30s, whereas ADT is well over $40,” he tells SSI. “Over time, they can bring the RPU up toward the ADT average, and that’s a large amount of growth right there.”

One way ADT can grow that business is through Devcon’s unique density in Florida and New York, which can help ADT create synergies and improvements in service capabilities that should boost the transaction’s margins materially, according to Kessler. Additionally, ADT can leverage and refine Devcon’s relationships with homeowner associations (HOAs) sales model, according to Imperial Capital’s John Mack.

“Devcon may have one of the largest businesses built around HOAs in the alarm industry,” he tells SSI. “I think it’s meaningful that ADT sees that as potentially a new avenue of growth, focusing on how they would sell to HOAs.”

Jones concurs, noting that with the aging population of baby boomers ADT will be able to look beyond the Florida market to sell to older adults seeking more types of monitored or managed home services.

“Cluster living and gated communities with city centers are a growing national trend,” she explains. “As a pioneer in working with HOAs, Devcon’s experience might be an excellent long-term national sales model that increases the RMR per customer for ADT.”

The recent deal is said to be just the beginning for ADT, which expects to see additional M&A opportunities like Devcon that could represent value-added enhancements to its organic growth. The company plans to seek attractive acquisitions of varying sizes that make economic sense and are a good strategic and cultural fit for the firm, Gursahaney said in the conference call.

Recommended for You:


If you enjoyed this article and want to receive more valuable industry content like this, click here to sign up for our FREE digital newsletters!

Security Is Our Business, Too

For professionals who recommend, buy and install all types of electronic security equipment, a free subscription to Security Sales & Integration is like having a consultant on call. You’ll find an ideal balance of technology and business coverage, with installation tips and techniques for products and updates on how to add sales to your bottom line.

A free subscription to the #1 resource for the residential and commercial security industry will prove to be invaluable. Subscribe today!

Subscribe Today!

Get Our Newsletters