Some ADT-FirstService analysis
At first blush, I thought the ADT purchase price for FirstService's security business was something of a steal. They paid (an announced) $187 million for a business that did roughly $200 million in revenue last year (theoretically - it's not broken out on FirstService's financials). So, less than 1x 12 months trailing revenues, that's pretty good, I'm thinking.
But then Frank Brewer said that only about 10-11 percent of that revenue was service-based. So, that's $22 million on the high side, which is just $1.83 million of RMR (theoretically - hard to know what of that is contracted and what is one-time fees). So, if you calculate as a multiple of RMR, you've got $187m/$1.83m of RMR, which leaves you with a multiple of 102x. Obviously, this isn't an RMR-based business, and ADT is keeping the management (FirstService Security CEO Frank Brewer will be the head of a new integration division at ADT) and a lot of clients and expertise, but there's still no guarantee that SST and Intercon will continue to create new business at their past rates, and there's likely to be at least some attrition in the sales and engineering forces, as there can be during an acquisition.
Now I kind of wonder if ADT overpaid a bit, especially in this economy. Money people, feel free to tear me down.
But then Frank Brewer said that only about 10-11 percent of that revenue was service-based. So, that's $22 million on the high side, which is just $1.83 million of RMR (theoretically - hard to know what of that is contracted and what is one-time fees). So, if you calculate as a multiple of RMR, you've got $187m/$1.83m of RMR, which leaves you with a multiple of 102x. Obviously, this isn't an RMR-based business, and ADT is keeping the management (FirstService Security CEO Frank Brewer will be the head of a new integration division at ADT) and a lot of clients and expertise, but there's still no guarantee that SST and Intercon will continue to create new business at their past rates, and there's likely to be at least some attrition in the sales and engineering forces, as there can be during an acquisition.
Now I kind of wonder if ADT overpaid a bit, especially in this economy. Money people, feel free to tear me down.
Labels: acquisitions, ADT, FirstService, Intercon, SST
posted by Sam at 4:18 PM
3 Comments:
Hi Sam,
This purchase seems like a lot of overlap/redundancy? It's not as if SST was an IT integrator that provides complimentary skills to their existing team.
Regardless of how much they paid, it does not seem that this strategically is ADT's true need. Maybe, it is, but if so, what does this say about ADT's current internal integration teams?
Best,
John
Hey John,
I think it says exactly what you think it says - ADT felt they were lacking in talent on the high-level integration front. But I also think they felt they were lacking in high-level customers. It's possible the petro-chemical and critical infrastructure facilities didn't want to trust themselves to a brand they saw as residential. SST's customers are highly loyal, will turnover to ADT, and will then give ADT the resume they need.
Hey Sam,
I am curious to hear your overall comments on SST's CEO, Frank Brewer. Do you think he is equipped to manage all of the new responsibilities resulting from this acquisition? He is certainly not your typical MBA grad, but certainly in a position among many academics, how do you think he will fair?
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