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Transaction
Case Studies

Peter A. Sokoloff & Co. regularly analyzes transactions which occur within the industries covered. An archive of these case studies is kept online as a courtesy to our colleagues. To receive by e-mail new case studies as they are prepared, please e-mail [email protected] with your contact information.

Archives > Transaction Case Study 83

SOKOLOFF & COMPANY CASE STUDY
Apollo Management Acquires ADT Corporation

DATE ANNOUNCED: February 16, 2016
BUYER: Apollo Management Group, LLC (NYSE: APO) 
SELLER:  ADT Corporation (NYSE: ADT)
PURCHASE PRICE: Purchase of all Outstanding Shares for about $6.95 Billion
FORM OF PURCHASE PRICE: $42 per share in cash

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES

Year

2013

2014

Trailing Twelve Months
through
December 31, 2015

Revenue

$3.31B

$3.41B

$3.59B

EBITDA

$1.57B

$1.64B

$1.82B

Cash

 

 

$75M

Debt

 

 

$5.40B

Purchase Price

 

 

$6.95B

Enterprise Value

 

 

$12.275B

Multiple of Revenue

 

 

3.42

Multiple of EBITDA

 

 

6.75

TRANSACTION DRIVERS
APOLLO will merge ADT with another portfolio company – PROTECTION 1.  “This transaction represents a highly attractive premium for ADT’s shareholders,” said Naren Gursahaney, President and CEO of ADT.  “We’re proud to have strengthened the quality of our customer base, improved service and retention, and extended our leadership in innovative solutions such as our ADT Pulse platform and our new Security-as-a-Service offering, ADT Canopy. By combining Protection 1 with ADT, we will be better positioned to expand the breadth and depth of the services we offer to our customers throughout the United States and Canada.”   

“The combined company will be a market leader with a powerful brand and scale resulting in an enhanced overall customer experience,” said Timothy J. Whall, President and CEO of Protection 1, who will be the CEO of the combined business following the closing of the transaction.  “In addition, Protection 1’s robust commercial presence will speed ADT’s expansion into the commercial sector supported by increasing commercial sales and technical skills across a well matched national footprint.”

SOKOLOFF COMMENTARY:
A missed earnings forecast for Q2 at the end of April 2015 sent ADT’s stock into what became a long term slide from a high of $42.61 on April 15th.  Less than 10 months later, on February 4th the share price had bottomed out at $25.94. 

This is a perfect example of how cruel the public markets can be.  Losing investor confidence drove ADT’s valuation way below private market multiples.  Recurring Monthly Revenue (RMR) in the alarm monitoring market is one of the most liquid and easily tracked standards.  ADT has $275 million of RMR.  Security RMR regularly sells in a band between 35x-50x RMR.  Apollo/Protection 1 is paying 45x RMR for ADT.  With ADT’s relatively slow growth, the valuation could be seen as a bit on the high side.  Buyer synergies will more than make up for this.

The superstar of Security RMR was the acquisition of Vivint by Blackstone Group in 2012 in a $2 billion deal reputed to be north of 60x RMR.  Vivint was (and continues to be) a fast growing powerhouse with an ability to develop quality RMR for low cost.

Tim Whall, CEO of P1 has a terrific reputation in the Security industry and shepherded Protection 1 to a major success last year for its former private equity owner, GTCR.  It is a major vote of confidence in Tim and his management team that Apollo has undertaken such a major acquisition after less than a year of ownership of P1.

Can’t wait to see what comes next!

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