Apollo Global to make nearly 3x with IPO of ADT

Apollo Global Management stands to nearly triple its money with the initial public offering of ADT Inc.

ADT is expected to price its IPO on Jan. 18 and trade Jan. 19, a source said. Last week, the company set terms for its pending IPO. ADT said Jan. 5 that it expected to sell 111.1 million shares at $17 to $19 each. Underwriters on the deal have the option to buy another 16.7 million shares via an over-allotment option (the green shoe).

ADT is a combination of several companies. Apollo acquired Protection One, a home security company, from GTCR in July 2015. Apollo also scooped up ASG Security, a security alarm monitoring business, from Parthenon Capital at the same time. Both deals were valued at a combined $2 billion, press reports from that time said. Apollo and management invested $755 million equity as part of the deal, according to a regulatory filing.

Leon Black’s buyout shop then acquired ADT for $7 billion one year later, in 2016. That deal called for Apollo and other shareholders to invest about $3.6 billion equity into ADT, the S-1 filing said. This means that ADT’s stockholders, including Apollo and other co-investors, have provided about $4.4 billion equity.

Apollo did get a chunk of its investment back in 2017. ADT last year paid out a $750 million special dividend to its owners, which are mainly Apollo. The buyout shop owned 100 percent of ADT before the IPO, the S-1 said. This will fall to 83.04 percent after the IPO, filings said. (Management and certain employees owns a small stake in Prime Security Services Topco Parent LP, the ultimate parent of ADT, the S-1 said.)

ADT, Boca Raton, Florida, provides security and automation services for homes and business in North America. The company reported that losses narrowed to $296 million for the nine months ended Sept 30 from $451.6 million for the year-earlier period. Revenue for the 2017 nine months was $3.2 billion. ADT employs about 18,000.

Private equity firms typically do not sell shares in IPOs. Apollo is keeping its 641.1 million share stake intact. At $18 a share, the midpoint of the $17-to-$19 price range, Apollo’s holding is valued at about $11.5 billion. Including paper gains and assuming the buyout shop will receive roughly all the $750 million dividend, Apollo is seen making about 2.8x its money on ADT.

Apollo’s buy of ADT in 2016 also saw Koch Industries emerge as a financing provider. Koch Equity Development, the investing arm of Koch, provided $750 million in preferred securities to ADT. The company paid $41 million in 2017 to Koch to satisfy dividend obligations, the filing said.

ADT said it plans to deposit about $750 million in net proceeds from the IPO into a separate account, which will be used to redeem Koch preferred securities. Koch will retain its warrants, the filing said.

Executives for ADT and Apollo declined to comment. Koch could not be reached for comment.

Action Item: Call Timothy Whall, CEO of ADT, at +1 561-322-7235.

Leon Black, chairman and CEO of Apollo Global Management, takes part in the Private Equity: Rebalancing Risk session during the 2014 Milken Institute Global Conference in Beverly Hills, California, on April 29, 2014. Courtesy of REUTERS/Kevork Djansezian