Key News

The $825 million acquisition is funded by $160 million of cash on hand and $665 million of new common stock (77.75 million shares) that will be given to the seller. It implies that Sunpro Solar selling shareholders will get ADT common stock at $8.55 per share which is below ADT prevailing share price on Nov 8, 2021 of $8.82-9.00. It means that at $8.55 per share. Furthermore, existing shareholders will be diluted by the issuance of 77.75 million of shares.

The fact that ADT is paying for acquisition by issuing more of its own stock shows that the company is overindebted and cannot borrow anymore. Paying with its own equity is the most expensive currency relative to cash or debt unless company management is desperate and/or doesn't believe in its own equity. ADT ventured out in totally new area of expertise (solar panel installation) which rarely works out well for companies that try to do so.

Sunpro Solar is an installer of rooftop solar panels on residential and commercial properties mainly in the sun belt of the US.

Our take: ADT faces two challenges simulateneously - 1) strategic - either no growth opportunities in their own market - intrusion alarm service or no ability to compete succesfully in their core market; 2) financial - too much debt that prevents company from structuring acquisitions in non-dilutive way to existing shareholders.

The Company has sold 54,744,525 Class B shares to Google which represents 6.6% of all outstanding common shares of ADT. Google will not be able to vote on election or removal of directors of ADT.

Effectively with this transaction ADT Inc has raised additional common equity - $450 million - by selling newly-created just-for-this-purpose Class B common shares to Google in private placement.

The declared use of rasied capital is to fund further growth and repay debt. The declared strategic logic of this deal is to create partnership with Google.

Our take: ADT management sold access to ADT customer base to Google for $450 million while diluting existing shareholders and providing no clear benefits.

ADT Canada generated revenue of $229 million for the fiscal year ended December 31 2018. Concurrently with the sale of ADT Canada, ADT Board has authorized special one-time dividend in the amount of $550 million.

Our take: Effectively, Canadian operations were sold in order to fund one-time special dividend which is a vehicle for wealth extraction from ADT by Apollo Management, a major shareholder of ADT.

ADT was purchased in February 2016 by private equity fund of Apollo Global Management for $6.9 billion. Apollo merged ADT with two other security alarm providers that Apollo owned - Protection One and ASG - to build larger company. Prior to going private, ADT was public traded company with 6.5 million customers.

As of Janurary 2018, company claimed 30% market share serving 7.2 million customers (subscribers) across US and Canada.

Our take: After a quick spruce-up similar to a house flip, Apollo floated ADT back to public stock market in January 2018. Typically, companies that are coming out of private equity ownership are settled with too much debt and have limited ability to compete due to chronic underinvetment by private equity owner.