Many independent alarm dealers say they expect the planned sale of Broadview Security to ADT to present some opportunities to smaller businesses despite the company's substantial increase in market share.
Photo credit: Photo illustration by Geoff Kohl/SecurityInfoWatch.com
Despite estimates that the recent acquisition of Broadview Security by ADT (see SecurityInfoWatch.com news story on ADT-Broadview merger) will give the company between 35 and 45 percent of the U.S. residential alarm market, many dealers and central stations think that the deal bodes well for the industry.
Given the $2 billion price tag that Broadview sold for, which equates to a RMR multiple of 42 times RMR, ADS Security Chairman and CEO Mel Mahler believes that the purchase has set a benchmark that will help companies like his moving forward.
“The biggest benefit (of this acquisition) to our company is the fact that it’s pretty well established that the (RMR) multiple on (the deal) was in the 40s and those sized companies have been going in the 50 to 60 range,” he said. “And since we’re a company that does a lot of acquisitions, we’re encouraged by that.”
Mahler added that this may be a sign of things to come for the industry with more companies looking to sell this year.
“We’re sitting here already with great private funding… we can do deals and sellers are still sitting there with these high expectations,” he said. “I think this will get them to be realistic and also they’ve got to be looking at the tax increases that are coming for 2011 if not sooner. If you’re thinking of selling, this is the time to do it.”
Others in the industry, such as Ed Bonifas, vice president of Illinois-based Alarm Detection Systems and president of the Central Station Alarm Association, feel that their companies may benefit from a reduction in marketing budget by the new combined ADT/Broadview.
“I think that in a lot of ways what’s going to happen right now is that some of the marketing that the collective two companies had spent in the past won’t get spent this year,” he said. “My guess is that they will save some of that because they don’t need to go to market twice. At the same time I think there is opportunity for everybody going forward.”
Though Broadview is known for their low attrition rates, Bonifas said that other dealers could see some new customers if the transition doesn’t go as smoothly as expected.
“If they do a really good job of implementing they will keep most of their customers, but any acquisition is going to have some hiccups here and there and all of that brings opportunity for the other players in each market,” Bonifas said. “So, we’re kind of looking forward to watching this happen and to be there to pick up any pieces we can find along the way.”
Neither Mahler nor Bonifas believe that the deal will significantly change the way that other companies in the market go about business. According to Mahler, many independent dealers have been doing things to differentiate themselves from the bigger companies for some time, even though many of the services they offer are similar.
“I think the smart independents are doing that. If you look at our initiatives, we’re primarily a 95 percent Honeywell company in terms of products and services,” he said. “We’ve got managed access for example, but ADT does that. We’ve got hosted video, but ADT does that. We have total connect in which today’s generation want their information going to their Blackberry or iPod and we’re doing that and ADT does that. ADT is actually more advanced than Broadview, so I think that will be a real benefit to the people at Broadview that they will now be affiliated with ADT.”
Electronic Security Association President Mike Miller doesn’t think that the sell will impact the smaller, independent dealers, who he said were already having to work to differentiate themselves from the ADT’s and Broadview’s of the world.
“It makes ADT stronger, but I don’t know that it necessarily affects the small business alarm dealer who was still going to be out there competing whether it was against ADT or whether it was against Broadview,” he said. “Maybe it takes out one less entity, but ADT certainly thinks they’re going to be stronger with Broadview, so I doubt they’re going to lose that much market share in the process and I’m sure they’ll take the strengths of Broadview and use it to strengthen their entire infrastructure.”
Miller added that acquisition will undoubtedly make ADT stronger players in the residential security market, being that nearly 95 percent of Broadview’s accounts are in the space.
Dan McKimm, president of Ohio-based ProTech Security, feels that smaller independent dealers will have to work harder to differentiate themselves from ADT and that companies such as his could stand to benefit from customers that would rather deal with local company than a conglomerate.
“This will make ADT obviously larger, but more difficult to manage… and even less flexible, which should give the smaller dealers perhaps more of an advantage to emphasize their ability to provide solutions to security needs of the client versus ADT’s typical cookie cutter approach to security,” he said. “I’m not trying to mitigate any impact; certainly ADT is going to have a lot more marketing dollars and much more of an opportunity to get exposure out there with the public. But I find most of the clients we go after are more educated and are not willing to accept ADT or any other company at face value. They want to get a second quote… and that’s where other companies need to take advantage of ADT’s Goliathness and show our ability to demonstrate what differentiates us from the large ADT/Tyco entity.”
Many people, according to McKimm, are going to want to deal with a local company that is familiar with their security system and not have to speak to a call center in another state that doesn’t have the same familiarity with their solutions. McKimm also believes that this acquisition is going to encourage smaller dealers to join larger associations and dealer groups to share their experiences.
“I don’t see this acquisition as anything more than perhaps an opportunity for (dealers) to become even better,” he said.