In Depth: Buyer to Combine Protection 1 and ASG Security Under P1 Brand
Security industry experts discuss Apollo Global Management’s acquisition of Protection 1 and ASG Security.
CHICAGO – Apollo Global Management, said to be one of the world’s largest private equity firms, will make its first foray into the security industry following the acquisitions of Protection 1 and ASG Security.
Financial terms of the transactions were not publicly disclosed; however, an industry source close to the deal who asked to remain anonymous said Protection 1 sold for $1.525 billion. The total purchase price for both companies was approximately $2 billion, according to the source. Both deals are expected to close midyear.
Apollo, which has roughly $163 billion in assets under management, said it will merge the two security firms. The newly-created company will continue to operate under the Protection 1 brand and will be led by P1 CEO Tim Whall.
According to Peter Giacalone, president of Giacalone Associates, the $2 billion price tag indicates a multiple north of 50x, based on the companies’ combined $40 million in recurring monthly revenue (RMR). ASG Security has reported $10 million in RMR with 2014 gross revenues of approximately $145 million, and Protection 1 claims almost $30 million in RMR in 2014 with $468 million in gross revenue.
“A meaningful tell would be the multiple of EBITDA of the combined entities. This is a big deal and although people like to speak of the multiple of gross RMR, the financial professionals are more interested in the multiple of EBITDA,” said Giacalone, a contributor to SSI’s “Monitoring Matters” column.
Protection 1 was purchased by GTCR, a Chicago-based private equity firm, for $828 million in 2010. Since being acquired, the company has added an additional $5 million RMR and pushed its valuation to approximately $700 million, according to SSI‘s source. GTCR made close to three times its capital over the five years it held Protection 1 and will realize an internal rate of return (IRR) in the 30% range, the source said.
“This begs the question of the value of the multiple, which everyone is so keen to report on in the industry,” the source said. “The reality is that earnings matter, steady state cash flow matter. Those are key, and the way to get the earnings and steady state cash flow is by driving solid operations.”
David Stang, founder and president of Stang Capital Advisory, said Apollo has chosen well to take ASG Security off the market and combine it with Protection 1, given the two firm’s complementary businesses and strong management teams. He views the deal “as a real positive for the entire industry” that a major private equity firm such as Apollo is entering the space.
“Both companies were in the market to be sold at about the same time. If you are Apollo looking at both these deals you say, ‘If I am going to buy Protection 1, I don’t want to have to compete with whoever is going to buy ASG,'” Stang said. “It makes sense to buy both of them and be that much more of a dominant player in the market.”
With roughly $40 million in RMR the combined companies are about the same size as Monitronics and Vivint, Stang said. “They are definitely now one of the industry leaders. I have to believe the combined company is going to be a much more aggressive acquirer of other businesses,” he said. (On June 2, P1 said it completed a deal to acquire Cam Connections Inc. (CCI), a full service security systems integrator based in Lakeland, Fla., with satellite offices in Davie, Fla., and Charlotte, N.C.)
Super-regional ASG Security, based in Beltsville, Md., sells, installs, monitors and services intrusion and fire systems, home automation, access control, and IP/cloud-based video systems throughout the Eastern and Southwest United States. Founded by its CEO Joe Nuccio, the company sold to Parthenon Capital in 2007. Apollo and Parthenon declined to be interviewed for this story.
Michael Barnes, founding partner of Barnes Associates, served as an advisor to Apollo on both transactions. He said the combined company will be uniquely positioned among the industry’s largest players. Namely, a privately owned company that offers a wide array of capability in focused geographic markets, across most all of the residential, commercial and institutional customer segments.
“The separation of Tyco and ADT, along with the primarily residential focus of Vivint and the commercial focus of Stanley, has resulted in customer segment specialists,” Barnes said. “Protection 1, particularly with the addition of ASG, represents a configuration that is more akin to the model on which the industry was built – deep presence in geographic markets, leveraging operating skill and local scale across the virtual entirety of customer segments.”
Les Gold, a partner with Mitchell, Silberberg & Knupp (MS&K), also considers Apollo’s entrance into the space a positive sign for the entire industry; however, the blockbuster deal isn’t likely to impact the valuation of smaller companies, he said.
“When Vivint was acquired that value was significant and it didn’t really impact the industry that much. The companies that have the volume and the profitability in the space are going to demand those numbers. They have for some time,” Gold said. “The values are there; I don’t think this is going to impact values one way or another.”
Barnes also said the deal would not directly affect valuations.
“But it certainly provides another data point to the long list of strong valuations and high returns for exiting investors. It is also bullish to have another large private equity group express such a high level of interest in the industry,” he said.
Whall and Nuccio, who are both inductees to the SSI Industry Hall of Fame, were former colleagues with SecurityLink in the 1990s. Their time together and likeminded business sensibilities will serve them well in working to combine the two organizations, Whall said.
“Joe and I had similar positions going through that organization, running branches at the same time with each other; going through the metrics, the same reports, same budget process,” he said. “We complement each other in a lot of ways.”
Creating ASG from the ground up to where it is today has been a joy, Nuccio said. When asked about his plans for the future he said it was too premature to discuss how the management teams would be integrated moving forward.
“Right now Tim and I are really focused and concentrating on how the two companies come together,” he said. “How do we ensure we are taking care of the customers that we’re creating for this world-class platform? Tim and I are going to continue to work through all this transition to get to that level. That is what we are focused on.”
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