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Archives > Transaction Case Study 71
SOKOLOFF & COMPANY CASE STUDY:
DATE ANNOUNCED: July 11, 2013
SELLER’S FINANCIAL INFORMATION AND M&A MULTIPLES
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.
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.
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