24 billion dollars in security deals by end of February
It started with Johnson Controls in January – $16.5 billion for Tyco in a move that angered US Presidential hopefuls as it was primarily for tax reasons; then we saw Honeywell setting out its plans to buy the Dublin based company Xtralis for $480 million before the mid February announcement that ADT would be bought by Apollo Global Management for $6.9 billion. Almost $24 billion of mergers and acquisitions have been announced in the first two months of 2016. Philip Ingram takes a look.
So what does this say about the market? It seems to be saying two things. The first and most important to the security industry is that it is clearly an area where real long-term market growth and potential is seen. Almost $24 billion, more than the GDP of many small countries, is being spent on mergers and acquisitions of a few very large security companies – and that sum isn’t committed lightly.
The second relates to the confidence in the markets. The ADT purchase price represented a premium of approximately 56 percent over ADT’s closing share price on February 12, 2016. However, this confidence comes with a political price, which was reflected in the interest that US Presidential hopefuls took over the Tyco move and its impact on US tax revenue…
Johnson Controls acquires Tyco International
In January, Johnson Controls, a U.S. manufacturer of car batteries and heating and ventilation equipment, agreed to acquire the Irish based Tyco International, a global provider of fire protection, security products and services, for a sum of $16.5 billion. The rationale was to create a tax lowering deal where Johnson Controls would move its headquarters to Cork in Ireland.
The deal between Johnson Controls and Tyco provides the clearest indication yet that the recent market volatility has not derailed strategic mergers from occurring. Because of this, the deal generated a lot of political comment from the current US Presidential candidates.
Democratic Presidential candidate Hillary Clinton said in a statement, “I have a detailed and targeted plan to immediately put a stop to inversions and invest in the U.S., block deals like Johnson Controls and Tyco, and place an ‘exit tax’ on corporations that leave the country to lower their tax bill.”
Vermont Senator Bernie Sanders, Clinton’s opponent for the Democratic Presidential nomination, also criticised the deal, calling it a disaster for American taxpayers. Others saw it as an opportunity to also highlight what they argue are the weaknesses of the U.S. tax system.
The merger will combine Johnson Controls’ commercial buildings business with Tyco’s fire security offerings, accelerating Johnson Controls’ transformation following its decision to spin off its automotive parts unit.
The deal will create savings of at least $500 million in the first three years, the companies said. They expect to save an additional $150 million a year through tax synergies.
Tyco was ahead of many big U.S. industrial companies in seeking tax relief by moving its legal residence offshore. The company moved its headquarters to Bermuda from Exeter, New Hampshire in 2007, then to Switzerland in 2009 and to Cork in 2014.
In 2012, Tyco was again broken up into three – one selling valves and controls for the energy market that merged with Pentair, while its commercial fire and security businesses combined into “new Tyco” and traded under Tyco’s symbol. The third piece consisted of the ADT North American residential security business, now ADT Corp.
Honeywell announces Xtralis deal
Honeywell announced at the beginning of February that it has entered into a definitive agreement to
acquire the smoke detection, advanced perimeter security and video security company, Xtralis, for $480 million.
Xtralis, founded in 1984 is headquartered in Dublin, Ireland, and serves more than 60,000 customer sites in 100 countries through a worldwide network of more than 400 certified partners.
It has approximately 500 employees across Europe, Middle East, Africa, Asia Pacific and the Americas. It is renowned as the leading global provider of converged solutions for the very early detection, remote video verification and rapid effective response for the prevention of smoke, gas and security threats. Xtralis and Honeywell’s converged solutions deliver unparalleled protection and situational awareness for many global, blue-chip customers.
Based in New Jersey, Honeywell is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services, control technologies for buildings, homes and industry, turbochargers and performance materials.
“Xtralis is a fantastic addition to the Honeywell portfolio that strengthens our offering for critical infrastructure and high-value assets,” said David Paja, President of Honeywell Security and Fire.
“This acquisition fits perfectly with Honeywell’s technology innovation and leadership,” said Alex Ismail, President and CEO of Honeywell Automation and Control Solutions. “Xtralis’ early smoke detection and advanced security technologies and video analytics software complement our growing security and fire business, and show our commitment to making the world safer and more secure,” he concluded.
Upon completion of the acquisition, Xtralis will become part of Honeywell Security and Fire, a business unit of Honeywell Automation and Control Solutions. This is expected to be finalised in the second quarter of 2016, subject to the usual regulatory controls.
ADT acquired by Apollo
ADT, the home and business security systems provider, is being acquired by the private equity firm Apollo Global Management for $6.9 billion, that is $42 per share, in the largest leveraged buyout so far this year.
ADT currently has 6.5 million customers and Apollo intends to merge them with Protection 1 and ASG Security, two other security companies that will all operate largely under the ADT name. The New York Times estimates that the combined company will create an annual revenue in excess of $4.2 billion.
ADT was acquired by TYCO in 1997, but in 2012 ADT had its independence once again when Tyco broke up into three units.
According to an ADT press release the purchase price represents a premium of approximately 56 percent over ADT’s closing share price on February 12, 2016 and, when combined with Protection 1, represents an aggregate transaction value of approximately $15 billion.
“This transaction represents a highly attractive premium for ADT’s shareholders,” said Naren Gursahaney, President and CEO of ADT.
“The combined company will be a market leader with a powerful brand and scale, resulting in an enhanced overall customer experience,” said Timothy J. Whall, President and CEO of Protection 1, who will be the CEO of the combined business following the closing of the transaction.
“In addition, Protection 1’s robust commercial presence will speed ADT’s expansion into the commercial sector supported by increasing commercial sales and technical skills across a well matched national footprint.”
“We are tremendously excited by this unique opportunity to combine two premier businesses,” said Marc Becker, Senior Partner at Apollo. “This transaction provides the opportunity to dramatically enhance our position in the large, fragmented and growing residential and business interactive electronic monitoring industry. Pro forma for the transaction, the newly created company will generate a combined $318 million in recurring monthly revenue and total annual revenue in excess of $4.2 billion, placing the businesses in a strong position to drive innovation and to capitalise on growth opportunities in the future.”
The Board of Directors of ADT unanimously approved the transaction which is expected to be completed by June 2016, subject to the usual closing conditions.