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Analysts and alarm professionals take a closer look at Telus-ADT

As the Canadian security industry digests last week’s announcement that Telus intends to acquire ADT’s operations in Canada for $700 million, some observers suggest the writing was already on the wall.

Lawrence Surtees, research vice-president, communications, with Toronto-based research firm, IDC Canada, said that the announcement would be more of a revelation “if this was the first CSP (communications service provider) doing this … but it’s kind of old news — they all want to be in this space.”

He added that most of the large service providers in Canada have already made significant moves in the home security market. “Rogers has been really, really big on promoting it for the last couple of years… For Telus [the ADT acquisition] will enable them to be competitive in that market vis-à-vis Bell and Rogers and others.”

Victor Harding, principal of Harding Security Services and regular alarm industry columnist in SP&T News, offered that ADT’s Canadian unit has not always met the performance expectations of its U.S. counterpart. In its Q1 2019 earnings report, ADT indicated that net growth in its U.S. residential and commercial businesses “was offset by a decline in RMR attributable to Canada.”

A number of factors could have contributed to ADT Canada’s performance, said Harding, including a weaker Canadian dollar.

In ADT’s statement regarding Telus’s acquisition news, the company’s CEO Jim DeVries said that “the sale of our more capital intensive Canadian operations enables us to sharpen our focus on the exciting growth and higher margin opportunities in the U.S., where we can more efficiently invest our time and resources.”

“There’s a lot of reasons why this is an understandable deal done by ADT U.S.,” said Harding.

He added that Telus’s acquisition of ADT’s Canadian assets was “not surprising… in that we’ve seen that Telus is interested in being aggressive and interested in building their base.”

Telus acquired the western assets of AlarmForce from BCE in early 2018 for approximately $66.5 million and then used that base to launch its Telus SmartHome Security and Telus Secure Business divisions later that summer. Telus said it expects to have approximately 100,000 customer accounts before adding the 500,000 that ADT Canada brings.

Regardless of whether the Telus-ADT Canada deal was foreseeable, it still represents a seismic shift in Canada’s alarm sector. With an estimated 600,000 accounts upon closing (the transaction is expected to close before the end of the year, pending the satisfaction of customary conditions), Telus “will be the big player,” said Harding, “but it all depends on what they do with it afterwards.”

He noted that the deal would immediately give Telus a significant presence in Ontario and Quebec. When ADT acquired Quebec-based Reliance Protectron in 2014 for $555 million, it added 400,000 residential and commercial customers.

Ivan Spector, an alarm industry veteran and president of Montreal-based Sentinel Alarm company, agreed that Telus’s acquisition of ADT would be “a big bite” in terms of its portion of the market going forward. Its earlier acquisitions, including the western assets of AlarmForce, “clearly whetted their appetite to continue to work in the security space. Obviously the end game is to continue to have customer entanglement.”

Telus’s recent security investments are another sign that the overall market is healthy, added Spector. “We’ve seen that there’s a lot of appetite from venture capitalists and from bankers to invest in the security space. I actually think it’s good for the acquisition side of the industry.”

He noted that the pace of acquisitions in the alarm market could accelerate, particularly for privately-held firms. Older owner/operators of alarm companies are looking for an exit strategy as they approach retirement age, he suggested, and larger, acquiring companies may seek to press their advantage as they expand their customer base and potential suite of services.

There are other factors that make Telus a player to watch in this market, said Surtees, particularly its statement that the ADT acquisition will also support its future offerings in the home health market. “How it relates to Telus Health is an interesting factor to keep an eye on,” he said.