Kessler on the multiple paid for Vivint
Whenever a big company in the industry sells, there’s interest in the specific metrics of the deal.
I called Jeff Kessler at Imperial Capital to talk about the pending sale of Vivint to the largest private equity group in the country, Blackstone and the numbers.
It’s not every day there’s a $2 billion deal in the security industry.
While Kessler has high praise for Vivint, he says that certain metrics are not as off-the-charts as one might think, at least according to his calculations.
Kessler pointed out that the sale of Vivint for north of $2 billion includes not only Vivint’s home security/automation business, but 2GIG (a manufacturer of alarm/home automations systems) and Vivint Solar.
So while the total enterprise value for the is “north of $2 billion”, the enterprise value for Vivint home security/automation is less than $2 billion, he said.
Which doesn’t mean the valuation is not impressive, it just means “the multiple of RMR, EBITDA or steady state cash flow will be less than the total amount given for the entire company,” he said.
In terms of a multiple of RMR, Vivint has said it has $30 million in RMR. Kessler said RMR will be higher by the time the sale closes at the end of the year. “If you assume that RMR will be higher, and you assume that [Blackstone will pay] something less than $2 billion for Vivint [home automation/security], the multiple of RMR paid would be in the 50s.”
However, Kessler doesn’t like to talk about multiples of RMR. He prefers to look at multiples of steady state cash flow, because that “really gets rid of the accounting variance that really riddles EBITDA,” he said.
Based on his estimates of Vivint’s [home automation/security’s] steady state cash flow, he said the multiple to be paid is actually “at lower end of the 10 to 13 times [steady state cash flow] range paid for larger, quality companies over the past 18 to 24 months.”
Kessler based his assumption on certain transactions such as Bain & Hellman buying Securitas Direct; Ascent Capital buying Monitronics, Summit buying Central Security Group and Oak Hill Capital buying Security Networks.
(I'm quite certain I'll hear from others who's assumptions and math differ from Kessler's. Please leave a comment on this blog or contact me.)
The important thing is that if you're trying to figure out a mulitple of RMR, steady state cash flow or EBITDA, you need to back Vivint Solar and 2GIG out of the equation.
And if you're trying to figure out if your company's ripe for a sale, take a good look at what Vivint's doing, Kessler said.
Kessler called Vivint is a “model company” that’s taking advantage of new technology and providing “a value-added proposition at a premium.” The company’s average RMR per new subscriber is the highest at over $50, and they’re doing good things such as moving away from all summer-sales and increasing in-house sales resources.”
The Blackstone deal “should allow Vivint a lot of growth [with the] forward-looking ideas it has on its platter. … This will allow capital runway for projects like increasing the size of their non-summer sales force, increasing their ability to move into new markets such as small and medium sized commercial security, and to fund the growth and development of new products in home and business services, some of which are not even on paper yet.”
There will be lots more deals done in the security industry in the next year. The capital players are interested, but Kessler said it’s the security companies, like Vivint, what he calls the “haves,” those that are taking advantage of new technology and which have a finely tuned sales and marketing efforts that will be the most sought after.