Apollo lands Protection 1, ASG

Whall: Combined company will be ‘a force in the marketplace’
Monday, June 1, 2015

NEW YORK—Apollo Global Management is about to take one giant leap into security with its May 19 agreement to acquire Protection 1 and ASG Security.

Under the agreement, reportedly $2 billion, the combined companies will operate under the Protection 1 brand, with Protection 1 CEO Tim Whall at the helm.

Whall told Security Systems News that given the companies’ “like-minded approach to the operations, the combination will be a force in the marketplace."

The deal would instantly deliver “both companies a wider footprint where they each did not have one and a greater density in the markets where we overlap. There is a definite benefit for the customers as well as the employees,” Whall said.

Jamie Haenggi, Protection 1 CMO, said the new Protection 1 would have $600 million in sales and $40 million in RMR, “with more organic growth and acquisitions on the horizon.”

She added that “it has never been Protection 1’s or ASG’s goal to be the biggest—it has always been both companies’ aim to be the best both for our customers and our employees.”

ASG CEO Joe Nuccio said it’s great to have one of the world’s largest private equity group—Apollo manages $163 billion—involved in the security industry. That means more resources for Protection 1 and potentially for other security industry companies, he said.

When Apollo gets involved, other funds take notice, Whall said.

Private equity firms differ in how they deal with portfolio companies. Security Systems News exchanged emails with Apollo, but the firm declined to comment.

Michael Barnes, a partner in the consulting and advisory firm Barnes Associates, who is advising Apollo, said while Apollo is a huge fund with many employees, "the team that has been focused on the security alarm industry and driving these deals is relatively small. They are very smart and they cycle through tough decisions quickly. They should make a great partner for P1 and ASG."

How might the group from Apollo work with management? Barnes said, "From what we can tell, their philosophy seems to be to pick the best horse and jockey and then let them run. To extend the analogy, I am sure they will influence things like what races they enter, but as long as they are winning they will likely just focus on making sure they have the needed resources and otherwise stay out of their way."

Whall, Haenggi and Nuccio also spoke about how the new Protection 1—with the staff, expertise and client base and geographic coverage that ASG brings—will be uniquely positioned in the industry.

Haenggi said that Apollo has been studying the industry for some time and they liked that Protection 1 has "not only has the national footprint, but also the breadth of services and markets serving residential, commercial and national accounts," she said. 

“Back in the day, there was ADT that had the size and breadth. Today, there is no one serving across all of these segments with the size of Protection 1. We are in a position to take that lead but do it with a decidedly ‘Protection 1 approach’ to business."

Barnes concurred with Haenggi, saying Protection 1, especially with ASG added, is the largest industry player with "a business model on which most of the industry was built. That is, having a large commitment to specific geographic markets and a broad range of product and services aimed at virtually the entire spectrum of customer types—everything from low-cost, entry-level residential systems, including a DIY offering, all the way up to large-scale systems for the commercial and institutional segments.”

Both companies also know how to acquire and consolidate smaller companies, Barnes noted. "This robust approach is in contrast to virtually all of the other large, national players, who are more narrowly focused, such as Tyco, Stanley and Diebold on commercial markets, and ADT, Vivint, and Monitronics primarily on the residential market."

What does Tim Whall say about Protection 1's expansion plans? Will it expand beyond the U.S. market? “I think it's safe to say that Protection 1 will hold not just a U.S. footprint, but a North American footprint," he said.

Asked about possible aspirations for a global presence, Whall laughed and said: “Well, before we talk international, let’s get this deal signed first and over the line—we’ll see how international we get, but I certainly would not rule out lots of growth from Protection 1 over the next several years.”

Private equity is no stranger to security, especially in the past two years. Recent deals include: Vivint to Blackstone, SAFE to ICV Partners, ACA to Norwest Capital, and most recently, Ackerman to Imperial Capital, Barnes noted.

However, this deal stands out, he said. "I can’t remember an investor like Apollo making a first step into the industry, on this scale, doing two transactions at the same time, and particularly with such a good fit between the two."

To attract private equity investors, Barnes said you "have to have all of the requisite pieces of the puzzle … size, capability, management and growth. In addition, you generally have to have a strong overall industry opportunity, since one is effectively competing against all other possible investment opportunities."

There is long list of dealmakers involved in this transaction. Financing is provided by Credit Suisse, Barclays, Deutsche Bank, Jefferies and RBC. Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as legal adviser to Apollo; Latham & Watkins LLP is acting as legal adviser to Protection 1; and Kirkland & Ellis LLP is acting as legal adviser to ASG Security. Morgan Stanley and Raymond James are acting as financial advisors to Protection 1 and Goldman Sachs is acting as financial advisor to ASG Security. Barnes Associates is advising Apollo.