Coverage: Apollo Global to buy ADT for $7 billion

Private equity firm Apollo Global plans to buy ADT Corp. for $7 billion with the hopes of merging the home securities company with its own home security company Protection 1.

Ankit Ajmera of Reuters had the day’s news:

Electronic security services provider ADT Corp said it had agreed to be acquired by funds affiliated with private equity firm Apollo Global Management LLC for $7 billion.

ADT shares rose 52 percent to $40.88 in premarket trading on Tuesday, just shy of the cash offer price of $42.

After the transaction closes, Apollo will merge ADT with its home security company Protection 1 in a deal valued at about $15 billion.

The offer price represents a premium of about 56 percent to ADT’s Friday close.

The combined company, to be headquartered in Boca Raton in Florida, will have proforma annual revenue of more than $4.2 billion. Apollo acquired Protection 1 in 2015.

ADT, spun off from fire safety and security systems maker Tyco International Plc in 2012, had 166 million shares outstanding as of Dec. 31.

Phil Serafino of Bloomberg detailed with Apollo plans to do with ADT:

Apollo plans to combine ADT with Protection 1, a home-security company it also owns. When ADT is combined with Protection 1, the aggregate deal value is about $15 billion, Apollo said. The acquisition comes a little more than two weeks after Apollo co-founder Josh Harris said the firm’s list of potential leveraged buyouts had disappeared as the debt market stalled.

ADT can actively solicit better offers for 40 days after a definitive agreement is signed, according to the statement. Goldman, Sachs Group Inc. is lead adviser to ADT, while BofA Merrill Lynch also is advising the company.

Protection 1’s advisers are Barclays, Citigroup Global Markets Inc., Deutsche Bank, and RBC Capital Markets LLC. Those banks also are providing financing for the deal.

ADT’s board unanimously approved the transaction, which Apollo said it expects to complete by June. The deal is subject to approval by ADT shareholders.

ADT surged 50 percent to $40.39 at 6:50 a.m. New York time in trading before U.S. exchanges opened.

Apollo also last week announced that it and other investors agreed to buy Apollo Education Group Inc., owner of the University of Phoenix, for $1.1 billion. Tyco International Ltd. acquired ADT in 1997 for $5.6 billion, and spun the company off in 2012.

Dana Mattioli, Dana Cimilluca and Lisa Beilfuss of The Wall Street Journal explained the significance of the deal:

ADT, an offshoot of the former Tyco conglomerate, makes security products for residential customers and businesses, ranging from burglary alarm systems to wireless cameras and video surveillance. It has worked to position itself as a player in the so-called smart-home market, which aims to connect consumers wirelessly to various household devices. The company’s stock is down 30% in the past year, in part as a result of a broader downturn sparked by fears of slowing economic growth, among other factors.

The transaction represents one of the biggest leveraged buyouts in recent years. ADT has more than $5 billion in debt, according to S&P Global Market Intelligence, and a so-called enterprise value of close to $10 billion.

Apollo, based in New York, was founded by veterans of junk-bond pioneer Drexel Burnham Lambert. The firm is known for its willingness to make aggressive, sometimes contrarian, bets. The firm has been acquisitive as of late as many rivals have sat on the sidelines of the LBO market. Just this month, Apollo signed a deal to buy struggling education company Apollo Education Group Inc.—with which it is unaffiliated—for around $1.1 billion.

The deal also signals that market volatility hasn’t derailed the merger market. Despite choppy equity, debt and other markets this year, activity so far in 2016 has been surprisingly robust in the wake of the record activity notched in 2015, when companies struck nearly $5 trillion of mergers. Other tie-ups this year include China National Chemical Corp.’s $43 billion deal for agricultural-products provider Syngenta AG and Shire PLC’s $32 billion planned purchase of Baxalta Inc.