William Blair's Thoughts On Alarm.com's Merger

AlarmCom Hldg Inc ALRM announced on Thursday that it had inked an agreement to acquire two business units, Connect and Piper, from Icontrol Networks. Comcast Corporation CMCSA also announced that it had entered into an agreement to acquire Icontrol’s Converge platform.

The Benzinga News Desk first reported Alarm.com being in talks to acquire Icontrol in a joint bid with Comcast on Monday morning. The confirmation of the report three days later sent Alarm.com’s skyrocketing.

William Blair's Bhavan Suri said in a report that the acquisition “cements Alarm.com as the leader in interactive security software” and that the price being paid seemed “quite reasonable.” Suri has an Outperform rating on Alarm.com.

What’s Being Bought

• Piper – Manufactures and sells a Wi-Fi-enabled video and home automation hub that is targeted at the DIY market
• Connect - Provides an interactive security and home automation platform that is used in several security providers’ solutions.

While commenting, “We like the acquisition,” the analyst mentioned that it provides Alarm.com with ADT, the largest security provider, as a customer, while also eliminating a potential competitive threat. “Icontrol was focused on larger security providers than Alarm.com’s core customer base, but we believe Icontrol had plans to compete more directly with Alarm.com.”

The analyst added that Piper could offer a “supplemental growth channel down the road."

The Price Being Paid

Alarm.com has agreed to pay $140 million for the two units and expects to fund the transaction through a combination of cash and debt.

Suri stated that ADT Pulse had 1.6 million subscribers and if it pays an estimated $2 per subscriber per month, Alarm.com would receive $38 million in annual revenues from ADT alone. ADT had a total of about 6.5 million subscribers and if 75 percent of these were converted to the Pulse platform, it would translate to about $117 million of annual subscription revenue to Alarm.com.