Can Apollo Get a Win with ADT after Canadian Services Sale

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ADT has underperformed since its takeover by Apollo Global Management

ADT announced is selling ADT Security Services Canada to TELUS Corporation.

Terms of the deal are CAD 700 million in cash, subject to certain adjustments. This transaction will comprise all of the security company’s Canadia operations and assets.

Meanwhile, ADT plans to return the bulk of this money to shareholders. The security firm also announced that its Board of Directors authorized a one-time special dividend of up to $550 million. The firm plans to set the dividend at $0.70 per share.

“Opportunities continue to develop for ADT in the areas of smart home integration, the expansion of the home security business into new demographics and ADT’s growth in commercial security,” said ADT CEO Jim DeVries. “The sale of our more capital-intensive Canadian operations enables us to sharpen our focus on the exciting growth and higher margin opportunities in the U.S., where we can more efficiently invest our time and resources. Importantly, these emerging opportunities are ideal for leveraging the trusted ADT brand as we continue generating strong free cash flow to drive shareholder value over the long term.”

Why ADT Sold to TELUS

The deal has as much to do with ADT’s finances as it does with TELUS’ strategy.

TELUS is building out its Canadian security operations. The firm started its SmartHome Security and Secure Business last year. It now expects to bring on 12,000 new customers to this new line in the third quarter.

However, these new assets add up to 500,000 residential business customers and can tap into an additional revenue of $229 million in 2018.

How Will Apollo Manage the Firm Moving Forward

Meanwhile, Apollo Global Management remains the majority owner of ADT. The private equity giant purchased the security firm for $6.9 billion in 2016.

In 2018, an IPO raised about $1.7 billion, but Apollo still owns 84% of the company. The private equity firm likely hopes a combination of dividends and stock buybacks can get the stock high enough for them to do another offering at some point.

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January 29, 2020

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