Apollo tries again to crack ADT code

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Tue 13:00

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
By Jeffrey Goldfarb
NEW YORK, Nov 2 (Reuters Breakingviews) - Apollo Global Management APO.N risks getting lulled into a false sense of security. The investment shop agreed to finance a $15 billion buyout of home and business protection provider ADT ADT.N, just months after exiting 10 years of ownership having failed to even double its money. Swapping equity for debt is a clever way to squeeze further returns using tactics that are boss Marc Rowan’s forte. It just requires believing the company can catch up to the times.
Started 152 years ago by Edward Callahan, who also invented the stock ticker, the erstwhile American District Telegraph finds itself technologically outmoded. Many property owners nowadays prefer to hook up their own DIY systems, like smart camera doorbells sold by Amazon.com’s AMZN.O Ring. ADT unveiled its own app-based Blu this year, but revenue has grown only about 4% annually on average since 2023, when it divested its commercial security arm to pay down debt. Enter Josh Kushner's Thrive Holdings, which focuses on turbo-charging existing businesses by injecting them with artificial intelligence.
Thrive is paying $10 a share for ADT, a 46% premium. The price will be of little comfort to fund managers who stuck around after shelling out $14 apiece in a 2018 market debut. Even Apollo struggled to scrape out profit.
Then led by Leon Black, the firm wrote a $3.5 billion equity check with co-investors to fund its 2016 acquisition of ADT, combining it with existing portfolio companies Protection 1 and ASG, on which Apollo spent some $760 million. A year later, ADT borrowed to pay its backers a $750 million dividend and Apollo collected fees and other dividends along the way, steadily selling its stock as the company brought in Google and insurer State Farm as investors. Offloading the final slug into the market in May capped off a meager rate of return of less than 10%, Breakingviews calculates.
Rowan is now securing a safer spot in the capital structure using different pools of money. Thrive intends to cover the purchase price with roughly 60% debt, some of it rolling over from ADT's existing pile. Apollo's initial financial commitment will be even bigger than the one it made in 2016.
Although the firm will inevitably try to pass some of the commitment to other lenders, market ructions can upend even the best-laid plans. This is Thrive’s biggest deal ever, and Apollo is trusting that the buyer can make such a big swing work. Rowan should know the company inside out, however, and credit is mostly about securing against disaster. Maybe this time around it can crack the code.
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CONTEXT NEWS
Home and business security provider ADT said on October 29 that it had agreed to be taken private by Thrive Holdings for $15.3 billion, including debt.
Under the terms of the deal, Thrive will pay $10 a share in cash, a 46% premium to the October 27 closing price, valuing the equity at about $7.6 billion. ADT also has 30 days to solicit competing offers.
Investment firm Apollo Global Management solely provided the financing commitment for the transaction.
Citi and Goldman Sachs are advising ADT while Evercore is advising Thrive.

(Editing by Jonathan Guilford; Production by Pranav Kiran)
((For previous columns by the author, Reuters customers can click on GOLDFARB/jeffrey.goldfarb@thomsonreuters.com))