(818) 547-4500 E-mail: [email protected]
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 71

SOKOLOFF & COMPANY CASE STUDY
Monitronics & parent Ascent Capital - Acquires Security Networks, LLC

DATE ANNOUNCED:  July 11, 2013
BUYER:  Monitronics & parent Ascent Capital
SELLER:  Security Networks, LLC & principal shareholder Oak Hill Capital Partners
PURCHASE PRICE:  $507.5M
FORM OF PURCHASE PRICE:  $487.5M Cash and $20M Monitronics’ Stock

SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES

Year Calendar Year
December, 2012

Revenue

$78.5M

EBITDA

$46.5M

RMR

$7.2 million for 2012 and $8.8M to be delivered as of August 2013

Purchase Price

$507.5M

Enterprise Value

$507.5M

Multiple of RMR

57.7

Multiple of Revenue

6.5

Multiple of EBITDA

10.9

TRANSACTION DRIVERS: 

Monitronics, a subsidiary of Ascent Capital, adds more than 600 dealers and one million accounts with the purchase of Security Networks.  Monitronics CEO, Mike Haislip, told Security Systems News “We want to take the best of Security Networks and the best of Monitronics and put them together so we have the best dealer program in the country.”  Ascent Capital said the two companies had similar business models leveraging a national dealer program and similar product offerings, and that Security Networks had an experienced management team, subscribers and RMR expected to grow faster than Monitronics as well as a quality portfolio of subscribers and dealers.  They also mentioned that the fold in nature of the acquisition would result in a lower integration risk and that the purchase would accrue meaningful operational synergies by eliminating duplicative functions.

SOKOLOFF COMMENTARY:
This acquisition takes Monitronics over the magic 1 million subscriber mark.  SN brings a dynamic growth engine to the mix with very complimentary operations and business models.  This is a winning combination.  Both the Monitronics and SN executive teams, along with Ascent and Oak Hill Capital’s partners are to be congratulated for putting together a classic 1+1=3 transaction!

A bit of analysis…EBITDA CAGR growth since 2009 for Monitronics has been 16% vs. an estimated 30% for SN.  Slower growth means higher margins and it is interesting to note Monitronics’ EBITDA margins are 69% vs. 60% for SN.

Security Networks RMR for Calendar 2012 was $7.2 million.  Contractually, they have agreed to deliver $8.8 million of RMR by closing in August.  That equates to more than a 30% annual growth rate and suggests that by the end of 2013 RMR will be running at about $9.6 million per month and 2013 EBITDA will be about $60 million.

Thus looking ahead though the end of the year, the purchase price multiples drop significantly:  Multiple of 2013 EBITDA looks like about 8.4x and the RMR multiple as of the end of 2013 could be 52.9.

With its sizable cash flows and cheap debt, the heavy leverage undertaken to do the deal will quickly reduce and Monitronics should emerge with an enviable balance sheet and well positioned among its industry peers.

Return to Archives