Apollo Global Management(APO) - Get Report said Tuesday it intends to acquire home security giant ADT(ADT) - Get Report for $6.9 billion in cash, with plans to combine the target with Apollo's existing security unit.
Terms of the deal call for Apollo to pay $42 per share in cash for Boca Raton, Fla.-based ADT, a premium of 56% to the target's Friday close. Apollo intends to combine the company with Prime Security Services Borrower, which does business as Protection 1, to create what the firm called a $15 billion home security giant.
The agreement includes a 40-day go-shop period in which ADT and its board can actively solicit superior proposals. Apollo said its offer has fully committed financing in place, including $1.555 billion in new first lien term loans, $3.14 billion in new second lien financing and an equity contribution of about $4.5 billion from funds managed by Apollo. The deal also includes the issuance of $750 million in new preferred securities to an affiliate of Koch Equity Development, a unit of privately held Koch Industries.
ADT CEO Naren Gursahaney in a statement said the deal represents "a highly attractive premium" for shareholders, while leaving the company "better positioned to expand the breadth and depth of the services we offer to our customers throughout the United States and Canada."
The deal is the latest step in the long-running consolidation of the home security sector. ADT, which began life in the 1860s as a stock ticker vendor and was once part of Western Union(WU) - Get Report and then AT&T(T) - Get Report , as part of conglomerate Tyco International (TYC) merged with Brink's Home Security Holdings(BCO) - Get Report in 2010 before being spun off as an independent in 2012.
Apollo has been in the business since May 2015, when the firm struck deals to acquire Protection One and ASG Security for a combined $2 billion and combine them under the Protection 1 brand. Though the number of stand-alone security firms has been shrinking, the survivors face pressure from new competitors, including telecom and cable providers eager to bundle security with Internet and entertainment packages.
ADT currently has the leading share of the $13 billion North American home security market, with about 25% of the business. Protection 1 is a distant second with about 4% of the market, ahead of other standalone vendors includingBlackstone(BX) - Get Report -backed Vivint and Monitronics International.
The ADT/Protection 1 deal could put pressure on Vivint and Monitronics to look for partners. Another potential dealmaker in the sector is Stanley Black & Decker(SWK) - Get Report , which according to sources will likely at least consider options for its in-house security arm this year.
Stanley Black & Decker is a holding in the Action Alerts PLUS Charitable Trust Portfolio, which is managed by TheStreet's Jim Cramer.
Exclusive Look Inside:
You see Jim Cramer on TV. Now, see where he invests his money and why Stanley Black & Decker is a core holding of his multi-million dollar portfolio.
Want to be alerted before Jim Cramer buys or sells SWK?Learn more now.
The combined ADT/Protection 1 will keep the ADT name and Florida headquarters, but will be run by current Protection 1 CEO Timothy J. Whall. The companies in a statement said that the combination would lead to better scale, and help ADT to grow in the commercial security sector.
"The combined company will be a market leader with a powerful brand and scale resulting in an enhanced overall customer experience," Whall said in a statement. "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."
Apollo senior partner Marc Becker in a statement that the deal "provides the opportunity to dramatically enhance our position in the large, fragmented and growing residential and business interactive electronic monitoring industry."