Industry Experts Weigh In on Apollo’s Bold Move to Acquire ADT
SSI spoke to half a dozen industry stakeholders from across the financial, M&A, integration and consultant professions to gain a deeper perspective of the $7 billion mega deal for ADT Corp.
While acknowledging Apollo’s deal making for ADT is a seminal moment for the industry, PSA Security Network President/CEO Bill Bozeman is taking a measured approach when considering the future of the combined company and its impact in the marketplace.
“No doubt the deal is huge, but after the dust settles I do not feel it will be as earth shattering as many are already predicting,” Bozeman said. “Life in the security industry will go on. ADT was big, now they are bigger. P1 was big and now they are bigger. What really matters is will this consolidation make them a better company?”
Tim Whall would seem like an ideal executive to coordinate such a massive undertaking to merge P1, ADT and ASG Security, Bozeman said. But could the job be too big for even Whall’s capable hands?
“ADT led by Tim seems to make sense on the surface considering the great job he did turning P1 around. However, this deal is way too big for any one executive. The CEO will need to surround himself with the best and the brightest as they are in for one hell of a ride.”
Ron Davis, president of Davis Mergers & Acquisitions Group and SSI‘s “Big Idea” columnist, said the mega deal didn’t surprise him in the least, nor that a private equity player consummated the transaction. The reasoning, he said, is simple.
“The landscape before a company that is so heavily leveraged into the residential market is rapidly changing. There are too many elements that could change within the reformatted management group at ADT,” Davis said. “This was a good opportunity for creating value for ADT shareholders and management team, they realized it, and took advantage of it.”
Davis views the merger as “extraordinarily good for the industry,” particularly for regional security companies that have been strategically focused on growing both through acquisition and organically. “It actually stabilizes the M&A portion of our industry and shows potential investors that the industry is vibrant, active and resilient,” he said.
Bob Harris, president of The Attrition Busters, said he also suspects the deal could influence M&A activity among regional players, as well as possibly act as a catalyst to nudge smaller companies into sell mode.
As a business consultant, Harris specializes in working with customer service-based industries, including real estate where he said Apollo has a fairly significant and successful track record of taking poorly performing investments off the hands of others and then turning them around in reasonably short order.
“I like the fact that Apollo has taken such a deep interest in the security industry. From what I have seen in the past few years, Apollo is very well positioned to successfully go outside the box of traditional private equity investors and create opportunity where others tend not to understand the business or show any interest in learning about it,” he said. “The fact that Apollo would dig so deep into the security industry means they too recognize that the recurring revenue business model is a winner.”
Apollo’s bid for ADT follows a recent spate of significant M&A activity that continues to reshape the market. (Go here for a summary of a half dozen of the largest installation/monitoring transactions that have taken place over the last year or so.)
According to Davis, a potential factor driving these largest deals could be a concern by company owners – and the financial players that back them – over valuations going forward. When valuations come under pressure or their outlook becomes tenuous, decision makers are sometimes influenced to either grow or sell – and by virtue of their size, change the dynamic that exists within the industry prior to the acquisitions.
“Ironically, all of this activity is aimed at the whales in our industry and
probably will not impact the traditional dealer operations as dramatically as many outsiders would think,” he said.
Mark Meulenberg, chief investment officer for VNB Wealth Management, said Apollo’s buyout offer for ADT illustrates how valuations of publicly traded businesses can get disconnected from economic reality in times of financial market distress.
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