Tyco acquires Broadview/Brink's for $2B

What was the multiple paid? Discussions continue
 - 
Tuesday, January 19, 2010

SCHAFFHAUSEN, Switzerland, and IRVING, Texas--ADT's parent company, Tyco International, announced this week that it will acquire Broadview Security, formerly Brink's Home Security, for $2 billion. The exact multiple paid for the transaction appears to be in the mid 40s, though discussions continue on that topic.

Tyco plans to combine Broadview with its ADT security business, the largest alarm company in North America. Broadview Security will be rebranded under the ADT name. This will be the second rebranding for Brink's Home Security dealers within a year. In the fall of 2008, Brink's Home Security spun off from its parent company The Brink's Company.   And on June 30, 2009, Brink's Home Security rebranded, with much fanfare, as Broadview Security.

The cash and stock transaction, which is valued at $42.50 per share, has been unanimously approved by the board of directors of each company.ADT is paying for the Broadview shares with 30 percent cash and 70 percent stock, with a maximum cash outlay of roughly $600 million.

So what was the multiple paid? In what promises to be a hot topic at at the Feb. 4-5 Barnes Buchanan Conference, there is not a unanimous agreement on this question.

Michael Barnes, a partner in investment banking firm Barnes Associates, which specializes in the security alarm industry, and co-sponsors the Barnes Buchanan Conference, pegged the deal as a 47 multiple of RMR. John Mack and Jeff Kessler at Imperial Capital, an investment bank that specializes in security, among other fields, had the multiple at 42.8.

Tyco, on the other hand, is only talking about the “post-synergy” multiple paid. During the Jan. 19 Tyco investors call, Kessler asked about the multiple. Ed Ardetti, Tyco’s SVP of strategic investor relations, said "once you've adjusted for the magnitude of the synergies, it is an RMR multiple, in our view, of nicely below 30 times." 

While there may indeed be a lower post-synergy number, this is not generally what's considered the multiple paid for a transaction, Barnes and Kessler agreed.

“As to the valuation on the deal, our initial assessment is that Tyco/ADT is paying something like 47 times Brinks/Broadview’s RMR. We arrive at this by multiplying the per share price times the outstanding shares and adjusting for working capital and assumed liabilities, and dividing the resulting enterprise value by RMR. This is all done using Brinks/Broadview’s public filings for the 3rd quarter of calendar year 2009,” Barnes said.

“What we haven’t completed is an analysis of the full terms of the deal, nor considered the impact of any ‘in the money’ options or warrants that exist. Additionally, since the transaction will not close until the 2nd calendar quarter of 2010, there will likely be changes in both the RMR and the relevant Balance Sheet items. Each of these will have an impact on the ultimate value of the deal,” he added.

Broadview Security has more than 1.3 million accounts and revenues of $565 million. ADT has 7.4 million recurring revenue accounts globally and generated revenue of $7.0 billion in fiscal 2009. In North America, ADT has 4.8 million recurring revenue accounts and revenue of $2.2 billion in fiscal 2009.

The deal is scheduled to close in the second half of Tyco’s fiscal year, which began in September, after customary approvals and approval by Brink’s Home Security Holdings shareholders.

Under the terms of the deal, Broadview shareholders can elect to receive: a mix of 30 percent cash and 70 percent stock; all cash (subject to the $600 million cap); or, all stock.

During a Jan. 19 conference call with reporters, John Koch, president of ADT North America said, “it will be nice to be on the same team.”

Bob Allen, president and CEO of Broadview said, “what we’re doing is combining two North American companies that have complementary products and services and are dedicated to provide superior service to customers.” The deal, he said, will mean further success for both companies: “We moved away from the Brink’s Home Security name with some regret … we’ll now become part of the strongest, best known brand in the industry … and we’ll be stronger as a result.”

Naren Gursahaney, President of ADT Worldwide, called the deal a “combination of two complementary companies in a fragment and competitive industry … a combination to result in an even more efficient, more successful ADT.”