Broadview Security to merge with ADT

Jan. 19, 2010 -- Tyco International, owners of the ADT business, announced today that it is purchasing Broadview Security, formerly known as Brink's Home Security. The deal is said to be worth $2 billion and will be paid in a mix of cash and stock to Broadview shareholders at a value of $42.50 per share.

Broadview Security came into existence in June 2009, having formerly been known as Brink's Home Security. Brink's Home Security itself was a spin-off of the Brink's Company, this being their residential and commercial security installing business that they developed alongside the well-known Brink's cash transport business.

According to Naren Gursahaney, president of ADT Worldwide, once the acquisition is completed (which is expected in the second calendar quarter of 2010 after approval by Broadview stockholders and governments regulators), Broadview Security will be rebranded as ADT.

Bob Allen, CEO and president of Broadview Security, noted that in the last year, his dealers have already had to rebrand once from Brink's Home Security to Broadview Security, but he said that the move to ADT may be even easier.

"ADT has always been the number one brand in the industry," said Allen. "Assuming the ADT brand may be an easier switch than assuming the Broadview brand was for our dealers."

The merger brings together over 6 million accounts; with roughly 1.3 million of those coming from Broadview Security and approximately 4.8 million from ADT. Gursahaney said the addition of those Broadview accounts, which are known for low attrition, would likely increase revenues by 25 percent. As for benefits to his own firm, ADT North America President John Koch said the benefits are allowing ADT North America to broaden its sales, installation and service teams, expand its direct and dealer channels, and expand the company's geographic base.

The move will create overlaps in the dealer channel once Broadview's dealers become ADT dealers, but both Allen and Koch said that they already have overlaps in some markets and that overlaps would be expected.

Wayne Wahrsager, president of New York Merchants Protective Company, the firm that runs the Smith & Wesson dealer program which competes directly with ADT and Broadview Security, says the merger of the two biggest alarm dealer companies will be good for the industry.

"I believe in the long run that it will help the industry," said Wahrsager. "It eliminates one more player, one more name in the marketplace. For us, particularly, it broadens the ability of our brand to reach alarm companies that wouldn’t do business under the ADT banner. I really think it’s a positive."

Wahrsager said the move primarily affects the residential security alarm industry, since both ADT and Broadview Security were top players in that space. He said that while ADT has a strong presence in the commercial market place for burglar alarms and security systems, Broadview Security was not particularly strong in that area.

"Truthfully, this [merger] is a revelation for our industry," said Wahrsager. "They just widened the gap tremendously."

John Mack, executive vice president and co-head of investment banking for Imperial Capital, said the merger could run up against anti-trust regulations. He expected the deal to give the combined ADT-Broadview business unit approximately 35-45 percent of the U.S. residential alarm market. IMS Research issued a report following news of the acquisition that placed combined ADT/Broadview residential marketshare in North America at greater than 50 percent. ADT Worldwide president Gursahaney discounted that number, noting that "I'm not sure where that 50 percent number comes from. The combined share is significantly less than that."

Mack added that the $2 billion price gives an RMR multiple of approximately 42 times RMR. That multiple is significantly lower than what many businesses have expected; since the previous range of RMR multiples on sales was typically between 50 and 60 times RMR.

"It portends a significant direction for sale of these types of businesses," said Mack. "Companies may no longer be getting 50 or 60 times RMR. These are the best players in the residential alarm business, and this is the benchmark transaction in the industry and will be for a long time."

Mack agreed with Wahrsager's belief that the deal was very good for the industry and shouldn't be seen as a negative for smaller alarm businesses.

"If market wasn’t growing, consolidation would be intimidating for the other companies, but we're seeing growth of sometimes up to 10 percent a year in this industry," said Mack. "I generally think there is opportunity for small- to mid-size companies with respectability in the market. More consolidation at the top may mean more room for independent companies."

Mack said that to make the synergies between ADT and Broadview work, the two companies would likely 1) consolidate some monitoring operations, 2) merge branch offices where the companies overlapped geographically, and 3) make cuts in administrative back-end staff. ADT currently operates five monitoring centers in North America; Broadview Security has two monitoring centers, located in Irving, Texas, and Knoxville, Tenn. Broadview's President Bob Allen said the two companies are not yet at a point where they have fully planned the technical integration of monitoring operations.

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