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Why ADT Corp. Shares Skyrocketed

By Brian D. Pacampara, CFA – Feb 16, 2016 at 10:48AM

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The home security services specialist gets gobbled up in the biggest private equity deal so far in 2016.

What: Shares of home security services specialist ADT Corp. (NYSE: ADT) were up a whopping 49.5% at 11 a.m. ET Tuesday after agreeing to be purchased by investment manager Apollo Global Management, LLC (APO) for about $6.94 billion.

So what: The all-cash deal -- one of the largest leveraged buyouts in recent years -- values ADT at $42 per share and represents a 56% premium to its closing price this past Friday. Apollo said it will merge its Protection 1 subsidiary with ADT in order to strengthen its position in the alarm services space, and judging by Apollo's own 3% gain today, Mr. Market seems pleased with the price that management is paying to do it.

Now what: The deal, which is expected to close by June, will create a combined company expected to generate $318 million in recurring monthly revenue and total annual revenue of more than $4.2 billion. "The combined company will be a market leader with a powerful brand and scale resulting in an enhanced overall customer experience," said Protection 1 President and CEO Timothy Whall, who will be tapped as CEO of the combined business. "In addition, Protection 1's robust commercial presence will speed ADT's expansion into the commercial sector supported by increasing commercial sales and technical skills across a well matched national footprint." So while ADT is likely all popped at this point, Apollo's newly bolstered scale and competitive strength might be worth looking into. 

Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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