Situation
Security and surveillance company ADT which sells alarm monitoring and security systems with video, fire and RFID sensors, digital door locks and thermostats is losing customers. This concerns institutional investors who carry long-term debt. ADT, the largest security system provider in the US and Canada was acquired by private equity firm Apollo Global Management in February 2016 in a leveraged buyout.
Challenge
ADT’s recurring revenue model runs to nearly 30% of the security market. Competitors like cable providers and younger and hungrier rivals are growing. Plus, ADT has $10.4B in debt that doubled from $5.3B when Apollo purchased the company. Investor sentiment was lukewarm during ADT’s recent IPO that had a target price of $17-$19. Today, ADT is trading in the $11 range. Many customers complain about the 36-month contract requirement and strict cancellation policies. Customers who cancel early must pay 75 to 100% of the remaining charges for their subscription term.
Opportunity
ADT uses a local dealer model that creates varied customer experiences without DIY installation options. Monitoring is expensive. ADT is a large company with great name recognition that helps to deter burglars, and they have decades of experience. ADT also offers extra protection from flooding, fire, and carbon monoxide. An easy opportunity is to pair existing services with medical monitoring via a pendant device while continuing their partnering strategy with DIY vendors like Amazon, Google, Samsung, etc.
Solution
ADT is a classic case of an old-line company in need of a facelift. Unfortunately, private equity investment and the merger with a competitor glossed over the underlying problems in the business. There is still great opportunity, but ADT’s $10.4B debt is a big problem.
Global Investments would develop a cDNA and EcoSystem model of ADT Corporation that encompasses emerging security technologies and value-added services. Streamlining operations and striping out waste will improve ADT’s ability to capture new areas of growth. ADT’s future opportunities must come from revamping its strong brand while modernizing the company so that it is agile enough to respond to changing customer needs with expanded product and service capabilities.
Takeaway - Streamline operations to stripe out waste to improve ability to capture new areas of growth.