Tyco International has agreed to buy Broadview Security for approximately $2 billion in a deal that will help the company corner a quarter of the residential security system market in North America.
The deal will bring together the two industry leaders in residential security system monitoring.Tyco's subsidiary ADT is already the market leader in North America, according to Dow Jones Newswire. Last fiscal year ADT's North American residential and small business operation had revenues of $2.2 billion last year, while Broadview's revenues were about a quarter of that.
Analysts say the deal makes good business sense for both companies.
"For Tyco and its subsidiary ADT security, the deal means adding the No. 2 player to its already No. 1 position in residential security systems, which is Tyco's largest revenue-producing business group," the newswire reported. "And for Brink's Home Security it means avoiding a costly, and potentially subscriber-losing, brand name change, along with the 36% premium being offered."
Dilip Sarangan, an industry analyst for Frost & Sullivan, estimates the acquisition gives ADT about 28 to 29 percent of the residential security monitoring marketplace. And while the acquisition will lead to some concentration at the top of the market, Sarangan said the majority of the marketplace is still open and competitive, with about 10,000 companies vying for business.
In a conference call with reporters, Naren Gursahaney, president of ADT Worldwide, said Broadview was acquired for three things: 1) " a high quality customer base that delivers solid, recurring revenue," 2) "an account generation and service engine that adds to this customer base everyday," and 3) "operational and tax synergies."
Gursahaney expects the deal to be final by the second half of this fiscal year after approval by regulators and Broadview shareholders. Both companies boards have already approved the transaction. When the deal is finalized, Tyco will merge Broadview into ADT. Broadview's shareholders will have the option of receiving $42.50 in cash, Tyco shares, or a combination of the two, according to Bloomberg.com. Tyco is paying Broadview shareholders 36 percent more than what a share closed at on Jan. 15.
Bob Allen, president and CEO of Broadview Security, said Broadview will continue to have success operating underneath the ADT brand.
"Upon completion of this acquisition," Allen explained, "we will become part of the ADT brand: the strongest, best known brand in the industry."
John Koch, president of ADT North America, added that by combining together, ADT and Broadview will bring next-generation products and services to the market more quickly. He also said each company has much to learn from the other when the firms finally integrate into one.
"We will look to adopt the best practices from both companies," Koch said, adding that ADT will draw on Broadview's recent experience is transistioning a brand. Brink's Home Security Holdings Inc., which operates as Broadview, already successfully rebranded itself after separating from its parent company, Brink's Co., in 2008.
Another lesson ADT could learn from Broadview, said Sarangan, is the ability to retain loyal customers. Broadview has the lowest customer attrition rate in the marketplace.
"With Broadview's 1.3 million customers and ADT North America's 4.8 million residential and small business customers," said Gursahaney, "we will have the responsibility to help protect over 6 million families and businesses in this portion of our business."
The acquisition, however, will affect staffing levels.
"We have an aggressive synergy model, so I think it's realistic to expect that there will be some impact there," Gursahaney said. Bloomberg.com reports job losses are expected, but a Tyco spokesman said it was too early to quantify them.
The market approved of the acquisition today with Tyco closing up 1.73 percent at $38.19 and Broadview shares jumping to $41.54, up 32.21 percent.
♦ Photo of ADT Logo by Mr. T in DC/Flickr