BOCA RATON, Fla.—Apollo has landed again. After years of rumors that ADT would be acquired by one entity or another, the home and business security giant today announced it has agreed to be acquired by Apollo Global Management for $6.9 billion ($42 per share). Apollo plans to combine ADT with Protection 1 and, according to an ADT news release, “will operate primarily under the ADT brand.”
Apollo, which manages $170 billion and is one of the world’s largest private equity groups, entered the security industry last year when it purchased Protection 1 and ASG.
The purchase price represents a premium of approximately 56 percent over ADT’s closing share price on February 12. Combined with Protection 1, the deal represents an aggregate transaction value of approximately $15 billion.
In addition to the premium for ADT shareholder, combining ADT with Protection 1 will bring large cost synergies, Alper Cetingok, managing director of Raymond James, told Security Systems News. Cetingok estimated there is “north of $500 million in corporate overhead [that could be cut] at ADT, not to mention the branch network. There is a ton of overlap in the branches. There are clearly cost synergies there as well.”
The combined company is expected to generate $318 million in RMR and have more than $4.2 billion in annual revenues. Cetingok called the task of combining Protection 1 and ADT “a bigger lift than anyone has ever done before” but noted that Tim Whall “has proven time and time again his ability to do this. … Creating operational efficiencies is Tim and Protection 1’s core competency. I wouldn’t bet against them.”
In a prepared statement, Tim Whall, President and CEO of Protection 1, said: “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.”
The Board of Directors of ADT unanimously approved the transaction. The deal is expected to be completed in June. It is subject to applicable antitrust waiting periods in the United States and Canada, ADT stockholder approval and other customary closing conditions.
Cetingok called the deal a “major statement by a very large financial institution that it is very comfortable with the dynamics of the domestic alarm monitoring industry.”
The deal is subject to a 40-day go-shop period.
The transaction will be financed primarily through the incurrence of $1.555 billion in new first lien term loans, $3.140 billion in new second lien financing, the issuance of $750 million of preferred securities to an affiliate of Koch Equity Development LLC, the investment and acquisition subsidiary of Koch Industries, Inc., and an equity contribution of approximately $4.5 billion from funds managed by Apollo and co-investors.
Protection 1 will also enter into a new $255 million first lien revolving facility concurrently with the closing of the merger, bringing the total combined senior secured revolving facility to $350 million.
In addition, concurrently with the closing of the merger, Protection 1 intends to redeem all of ADT’s outstanding senior unsecured 2.250% notes due July 2017 and senior unsecured 4.125% notes due April 2019, which will be redeemed in accordance with the applicable indenture, and to repay all outstanding borrowings under ADT’s revolving credit facility. ADT’s remaining $3.750 billion of total senior unsecured notes will be guaranteed by Protection 1 and all wholly owned domestic subsidiaries of the combined company and will be secured by first priority security interests in substantially all of the assets of the issuer and the guarantors. As a result, Protection 1 expects that these notes will maintain their current ratings and remain outstanding.
Financing is being provided by Barclays, Citigroup Global Markets Inc., Deutsche Bank and Royal Bank of Canada. PSP Investments Credit USA LLC is also a committed lender under this debt financing.
Goldman Sachs is the lead financial advisor to ADT and BofA Merrill Lynch is also serving as financial advisor to ADT. Barclays, Citigroup Global Markets Inc., Deutsche Bank, and RBC Capital Markets, LLC are serving as financial advisors to Protection 1. Simpson Thacher & Bartlett LLP is acting as legal advisor to ADT. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal advisor to Protection 1 and Apollo.
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