Putting the Vivint sale in perspective

Michael Barnes and George De Marco on the $2 billion valuation of Vivint, whether its growth plans are realistic, and its plans for expansion into commercial security
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Wednesday, September 19, 2012

YARMOUTH, Maine—News today that the Blackstone Group, a $180 billion private equity firm, will acquire home automation and security company Vivint in an agreement worth more than $2 billion is another “huge shot of support for the industry,” Michael Barnes, founding partner of Barnes Associates, a consulting and advisory firm that specializes in the security alarm industry, told Security Systems News.

“Blackstone has the opportunity and the ability to invest virtually anywhere on the globe. The fact that they wrote such a big check for a security alarm company, at such a strong valuation, is a real sign of confidence,” Barnes said.

In an interview with SSN, Vivint CEO Todd Pedersen said doubling the size of the company in the next five years is well within reach. "If we only double our enterprise value in the next five years, I hope they fire me,” he said.

SSN asked Barnes his opinion about Vivint’s prospects for this kind of growth.

“Vivint has grown its RMR at something like a 68 percent CAGR since 2006, an unprecedented success, bringing them to over $30 million of RMR this year. [And they have shown] no signs of any slowing down,” Barnes said.

It gets harder to double in size the bigger you get, Barnes said. “But at a 15 percent CAGR, you double in size every five years," he said. "Do I think Vivint can minimally maintain this rate over the next five years? Yes.”

He pointed out that doubling the size of the company does not necessarily yield a doubling in value. “But much of the premium paid on this transaction is a reflection of Vivint’s pioneering rate of sustained growth. Doubling a $30 million RMR alarm company using internal sales will be an even more impressive feat, especially if they can maintain their other important metrics. Do this, and I think the value of the company easily follows its growth,” he said.

Vivint plans to enter the commercial security market in 2013, and the door-to-door sales approach will be a component of Vivint’s go-to-market strategy, Pedersen told SSN.
 
Barnes said he’s not surprised by these plans. “Given that many business centers are clustered like neighborhoods, it might work," he said. "Selling alarm systems is, and probably always will be, a belly-to-belly sale. Nothing beats sitting down with the prospect and walking them through the benefits of having a system.”
 
Barnes said the alarm industry has seen positive things “come together on the product side, more functionality, lower prices, betterlooking [products]. It is nice to see some significant innovation by an alarm company on the sales and marketing side.”

The penetration rate for home security systems has remained in the high teens and low twenties, he noted. “Vivint has done a great job in pointing toward a future with a much higher take rate,” he said.
 
George De Marco concurred with Barnes. De Marco is the former owner of Greater Alarm, which did residential and commercial security and systems integration. He is now chairman of ESX.

De Marco said that Vivint, formerly known as APX Alarm, “put everyone on notice that there was another way to drive organic growth other than by traditional industry thinking.”  
 
The Vivint team “had the appetite, willingness and ability to challenge the status quo, transforming traditional industry go-to-market strategies into a dynamic selling machine," he said. "Their unique vision and culture allowed the organization to introduce a disruptive selling practice, attain amazing organic growth, shatter the former RMR price ceiling, and develop next-generation product technology.”
 
De Marco said Vivint’s plans to expand internationally, into home health, commercial security and eventually into system integration, are ambitious. “Although system integration is very challenging, I would not bet against them at this point,” he said.   
 
The success of Vivint’s disruptive business model “illustrates the potential and expansive opportunities afforded companies that take a fresh approach to conventional business practices,” De Marco said.