May 26, 2011
Is ADT Security for Sale? Rumors Swirl of Potential ADT Purchase by French Energy Conglomerate
Reports of the potential purchase of ADT first surfaced in April, and then again earlier this month. Sources included the New York Post, and of course the news spread from there – not only to the financial media, but also to the publications that cater to the electronic security industry. Since the general public rarely gets to see alarm industry “insider reports,” I thought I’d share with you this recent article, from Security Director News.
Speculation that Schneider Electric may indeed be interested in acquiring Tyco International, or at least part of the conglomerate, began circulating again, May 13 after the New York Post reported that Schneider is in talks with private-equity firms about a $30 billion-plus bid.
Tyco Owns ADT
As many of you may know, Tyco International owns ADT Security. Tyco split into three separate companies in 2007, and ADT represents the bulk of the business in Tyco's fire and security division.
Schneider’s plan, according to the Post, is to split Tyco’s assets, keeping the fire and security businesses (ADT and SimplexGrinnell make up the biggest parts of those two units) and ditching the flow control unit and part-ownership Tyco still has in has its electrical and metal units.
The Plot Thickens
The Post also reported there’s a possibility that several PE (Private Equity) firms will partner and make their own offer for Tyco. The Post also reported that if Tyco began a formal auction, analyst Brian Langenberg believes Siemens, which is rolling out a global cities platform, and United Technologies, whose head of business development used to run UTX's fire and security business, could take a look as well.
Now that could be interesting. There have been rumors for years that other players (including several of Wall Street’s large “takeover” firms) were looking at Tyco as a potential target. In today’s uncertain economy, businesses with significant recurring revenue (such as alarm companies) are viewed as more stable, and therefore more reliable as an investment.
Will It Happen?
The Post story, and several other news outlets which cited the New York Post report, noted the Schneider denies that it was in talks with Tyco or even interested. On April 20 on Schneider CEO Jean-Pascal Tricoire said: "There is no plan of large-sized acquisitions now and in the foreseeable future.” But the reports point to Tyco CEO Ed Breen’s comments during Tyco’s April 28 conference call as evidence that Tyco wouldn’t object to the bid, as reported by Security System News, the sister publication of Security Director News. "We always, as a management team, present to our board and talk to them about all the alternatives you can have to create long-term sustainable shareholder value," Breen said.
What Does This Mean to You?
It’s hard to say if this rumored transaction will even occur – and even harder to predict what the impact would be on ADT, or its customers. ADT currently has its hands full, working hard to assimilate the acquisition of Brink’s/Broadview, while rolling out the new Pulse offering that is supposed to put ADT back on the technology map. Speaking of rumors, it is said that neither project is going well: sounds as if the million-plus Brink’s US customers were accustomed to a much higher level of service at Brink's than they are now receiving, and it appears Pulse is taking longer to get off the ground than ADT expected. Would a change in ownership help move things forward? Perhaps - but there would also be a tremendous amount of distraction if the company changes hands.
Like other alarm companies, we keep our eyes on ADT. After all, ADT is by far the largest of the roughly 13,000 alarm companies operating in the US. In fact, few people can name the #2 company: it’s Protection One, in distant second place. But the fact remains: we like having ADT as a competitor. They spend a lot of money on advertising, which helps us all. And when it comes to technology and quality of service, you can often do better with a smaller, nimbler company. That’s why we recommend that anyone shopping for security should read the reviews and do the homework. The harder you look, the more you’ll find attractive alternatives to the 800 lb. gorilla. FrontPoint is a great example: as the #1 ranked home alarm company in the US, we are all about cutting-edge alarm technology and world-class service. And by the way, FrontPoint is not rumored to be for sale!