Buyback: Why GTCR is pursuing commercial security biz, again

GTCR bought Protection 1 for $828m in 2010. Now, it’s carving out the business from ADT for $1.6bn.

GTCR this week agreed to acquire a commercial security and safety provider it previously owned, this time through a carveout from ADT for $1.6 billion, eight years after selling the business to Apollo Global Management.

Chicago-based GTCR initially bought the company, known as Protection 1, in 2010 for $828 million and exited to Apollo in 2015. In 2016, Apollo went on to acquire ADT Corp and merged it with Protection 1, before taking Boca Raton-based ADT public in 2018.

David Donnini, GTCR

“We are buying back a business which we owned before in a previous company, and so our interests in the business have been long term and we have got quite a bit of experience,” said David Donnini, managing director and head of business and consumer services, GTCR.

With a footprint across the US, ADT Commercial serves a wide range of industries, including schools, hospitals, warehouses and other large businesses to enhance safety and security at their premises.

The business has some attractive characteristics that GTCR is banking on, according to Donnini, describing it as a “critical service, regulated and mandated.”

“Customer retention [in this business] is quite high because of its complex [nature], and it’s so critical for the customers,” he said. “They don’t typically switch providers very much at all, and we really value that type of stability to the business.”

The business is highly recurring too, he said. “Customers pay us monthly to monitor, service and inspect their systems to make sure they are in working order.”

For growth, GTCR is looking at opportunities to add salespeople, invest in customers and enhance technology.

“Technology is part of the story,” he said. “Technology and security and life safety have continued to improve and drive a nice tailwind in the industry.”

Commercial security has evolved over time, in part because of advancements, including video surveillance, which is cost effective, Donnini said.

Resources to grow

Buying back a business that it previously owned is not unusual for GTCR, Donnini said. But what made the carveout particularly interesting for the firm is the previous experience that GTCR has in this sector and the company itself.

This also marks the fourth time that GTCR has been working with Tim Whall, who will be joining the board. Whall was previously the CEO of Protection 1.

“The business will benefit from being carved out from ADT. As a small part of ADT, it didn’t always get first priority for resources in terms of growth capital,” Donnini said.

“We will be 100 percent focused on commercial security and provide the resources to grow the business. On a standalone basis, we believe we can improve the margins of the business, integrate and operate certain aspects a little more efficiently.”

Due to the variations in bid-ask spread in valuations, mainly because of the state of the market, arriving at the $1.6 billion, required “compromise a little bit” to get to the price that both sides felt good about, Donnini said.

As for economic challenges, Donnini added that the company is “mission critical” to customers. “When there is an economic slowdown, it would be quite resilient.”