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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 31

ADT Security to acquire FirstService Security

Dear Colleague,

On April 14, 2008, Tyco International Ltd. (NYSE: TYC, BSX: TYC) announced that its ADT Security business has reached an agreement to acquire FirstService Security, a division of FirstService Corporation (NASDAQ: FSRV; TSX: FSV and FSV.PR.U) for approximately $187 million.

FirstService Security is a commercial security systems integrator and provides a full range of integrated security systems services, including design, engineering, installation, servicing and monitoring of access control, closed-circuit television and intrusion systems. They employ approximately 2,400 people with 17 offices in the U.S. and Canada.

ADT, a unit of Tyco International, is a provider of electronic security services to more than seven million residential, commercial and government customers. ADT’s security solutions include: intrusion, video, electronic article surveillance, integrated systems, critical condition monitoring and radio frequency identification (RFID). Tyco had 2007 revenues of more than $18 billion and has 118,000 employees worldwide.

The proposed transaction’s $187 million purchase price is 12.85x EBITDA (adjusted to exclude corporate overhead) of $14.55 million (ttm). It is .95x ttm revenue. FirstService Security had a 10.8% growth in top line revenue compared to the prior 12 months.

Annualizing the most recent quarter numbers (12/31/07), the FirstService unit is running at $220 million in revenue and $17 million in adjusted EBITDA, suggesting multiples paid for current performance of .85x for revenue and 11x EBITDA.

The last major security systems integrator sale was last year’s (announced March 2007) acquisition of Rentokil’s Initial Electronic Security Group (IESG) by UTC for a purchase price of $1.16 billion. This was 14.7x 2006 EBITDA and 2.1x 2006 revenue.

FirstService’s EBITDA margin is 7.7%, which is generally considered low by industry standards. Rentokil was running at 14.3%, suggesting that ADT may be able to generate significant margin improvements after the sale.

“This is an important strategic acquisition that expands and complements the advanced systems integration expertise ADT offers our commercial customers.” said John Koch, president of ADT North America. “Commercial sales represent the largest component of our business and FirstService Security strengthens our presence and provides growth opportunities in key vertical markets such as banking and energy.”

FirstService Security operates under the Security Services & Technologies (SST) brand name in the United States and under the Intercon Security brand name in Canada.

The transaction is expected to close as soon as practicable following receipt of required regulatory approvals and satisfaction of other customary closing conditions.

We hope that you find this feature from Sokoloff & Co. interesting, informative and useful.  We welcome your comments and suggestions.

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