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.
Meulenberg explained his firm has been “wondering for some time how to make sense of the valuations” of ADT and Ascent Capital Group, Monitronics’ holding company. Even with the known issues facing Monitronics – continued high attrition rates related to accounts purchased from Pinnacle Security in 2012, as well as pressure on purchase multiples for dealer accounts – when valuing the company a variety of ways the stock price was worth multiples of where it has been trading over the last year, he said.
“This held true whether done on a comparison basis with a deal done as recently as last summer using RMR multiples, or even in the Draconian scenario of putting the company in runoff mode where they would wind down the operations,” Meulenberg explained. “Both scenarios yielded an equity value substantially north of the share price. In fact, in early 2016 the equity of the company was reflective of RMR rates that were below levels where Ascent had reported buying dealer accounts.”
Listen to Tim Whall discuss Protection 1 in this 2014
appearance on Jim Cramer’s “Mad Money” show on CNBC.
The transaction value of Apollo’s offer for ADT Corp., combined with Protection 1, is approximately $15 billion, which represents an RMR multiple of ~48x for the combined entity. The price highlights the value a rational buyer sees in buying a security monitoring business that offers stable, recurring revenue with high returns on capital, Meulenberg said.
“Applying a similar multiple to the ADT deal announced [on Tuesday] to Monitronics would result in a valuation that is multiples of the current price. Even discounting that RMR multiple heavily in Monitronics’ case, due to current high attrition rates and debt load, yields a significantly higher share price,” he said.
Like all sources interviewed for this story, Meulenberg is bullish on the monitored security industry in the U.S., which despite continued consolidation remains highly fragmented and underpenetrated. Current players are seen to especially have ample opportunity to benefit from the long-term positive trends in home automation and household formation. Increased penetration in the commercial space is also considered to offer a vast pool of prospects going forward.
“All of these opportunities, we are sure, have not gone unnoticed by savvy investors and operators like Apollo. Particularly noteworthy to us is that the deal was done during a very jittery period for the bond market,” Meulenberg said. “There are some nuances in the deal structure that seem to help ADT avoid possible ratings downgrades too. But, generally speaking, it certainly looks like the public market’s miss is the private equity player’s gain.”
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About the Author
Rodney Bosch, Senior Editor
Although Bosch’s name is quite familiar to those in the security industry, his previous experience has been in daily newspaper journalism. Prior to joining SECURITY SALES & INTEGRATION in 2006, he spent 15 years with the Los Angeles Times, where he performed a wide assortment of editorial responsibilities, including feature and metro department assignments as well as content producing for latimes.com. Bosch is a graduate of California State University, Fresno with a degree in Mass Communication & Journalism. In 2007, he successfully completed the National Burglar and Fire Alarm Association’s National Training School coursework to become a Certified Level I Alarm Technician.
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