NRG Energy (NYSE: NRG) has completed the acquisition of Vivint Smart Home for $2.8 billion in cash.
The transaction, first announced in December, is said to accelerate “the realization of NRG’s consumer-focused growth strategy and offering consumers simple, connected experiences to power, protect and manage their homes intelligently,” according to an announcement.
“This acquisition is the next step in our consumer services strategy,” stated Mauricio Gutierrez, NRG president and CEO. “Today, NRG is at the intersection of energy and home services, with a unique end-to-end smart home ecosystem underpinned by our exceptional customer experience. I am excited to welcome Vivint into the NRG family.”
Provo, Utah-based Vivint has nearly two million customers using its technology platform to integrate various home device functions. NRG Energy, one of the largest utilities in the U.S., is involved in energy generation and retail electricity. Combined, the companies will service more than 7.3 million customers across North America.
NRG’s leadership in energy markets combined with Vivint’s tech-forward smart home solutions come together as a platform to provide additional opportunities to serve customers with products and services across power, natural gas and essential home services segments, according to the announcement.
Industry Insiders Are Bullish on the Deal
The deal follows a trend in recent years for credible, deep-pocketed players from other industries wanting to enter the security industry in order to consolidate consumer electronics and systems into viable packages, explained Ron Davis, president of Davis Marketing Group (DMG), a full-service consulting firm serving the security industry, which also includes GraybeardsRus.
“What this says about the residential market for security systems is that it is indeed viable and security should certainly be considered as one of the fundamental elements of a home automation system,” Davis said. “Vivint was built as a viable security company with a great management team and a good business plan. Along the way they were acquired by another company, and seemingly lost their way in the retail market. Some of their customers will go away, but my guess is most of them will stay and see what happens in the merger.”
Vivint was acquired by Blackstone for more than $2 billion in 2012. Vivint then became publicly listed through a reverse merger in 2019 with Mosaic Acquisition, a special-purpose acquisition company of SoftBank Corp.
Davis said he views the NRG acquisition as a great opportunity for the security industry. “A major residential company is being acquired by a major energy company. If you think about some of the other acquisitions that made the headlines in our industry, you will see a trend toward bigger companies buying bigger alarm companies. Right now is a great opportunity for alarm companies of medium to large size to consider an exit. I believe it will be one of the great opportunities for exit strategies in the industry. And I believe, wholeheartedly, that not only will the industry survive but will continue to grow.”
For Les Gold, a venerable industry attorney who pens SDM’s monthly Security & the Law column, the price paid by NRG “is indeed gratifying,” given he represented Vivint in its infancy. (The company was co-founded by CEO Todd Pedersen in 1999 as APX Alarm. In 2011, it was rebranded as Vivint.)
Like Davis, Gold also emphasized NRG’s recognition of security to gain additional headway into the home, similar to how Amazon has utilized Ring to become entrenched in the residential market. “The continued recognition of the synergy between energy and security should present significant opportunity to the security industry,” he said. “Vivint has sure advanced the value and opportunities for the security industry. This should be a great fit for NRG.”
Yet Gold stresses a particular caveat: “Unlike the energy providers, security is much more of an emergency personal service business. This is something that NRG will have to recognize and accept. It took a long time for the cable companies to recognize this factor.”
Kirk MacDowell, president of MacGuard Security Advisors, commented that NRG’s acquisition “makes total sense for them” and is a strong indicator to be “bullish on the residential market and it being an origin strategy.”
“[Houston-based] NRG Energy has other facilities across the United States, including the Northeast. They have been trying to double down, but they’ve had a difficult time overcoming the regulated side of the business. Holding and operating Vivint remotely from the utility allows them flexibility,” MacDowell explained. “Another point is consumers in Texas can change their electrical utility monthly if they want to. So they can get power from one provider one month and another provider the next month. Tying security into the NRG family creates stickiness.”
Despite his enthusiasm for the deal, MacDowell cautions any large utility willing to pay a handsome sum to enter the market, drawn by the prospect of offering homeowners services besides security. History tells us NRG should proceed prudently. He references a mega deal in 1998 in which Edison International, at the time California's third-largest electric utility, acquired Westec Security Group for $300 million in a bid to expand the company’s presence in the home security business. In the end, it was a regrettable transaction.
“When Edison bought Westec, they completely just mucked it up. NRG absolutely needs to allow alarm people — either Vivint or a new team — to run it. It has got to be security-centric. Otherwise, they're going to lose interest and two years from now you're going to see a press release saying they want to return to their core business,” MacDowell commented. “So that’s the only pitfall that I can see. They have to let security run it. And then they can augment services. It's great to say they want to own everything in the home. It’s more difficult to do it.”
Litigation Continues to Hound Vivint
With the acquisition, NRG inherits Vivint's litany of litigation troubles and recent court decisions that could cost the company tens of millions of dollars over alleged shady door-to-door sales practices. Prior to completing the acquisition on March 10, some investors and analysts were concerned that CPI Security’s recent $190 million court victory against Vivint could cause NRG to seek a price cut or try to terminate the deal.
While those concerns never materialized, Vivint was later hit with a suit by Alert 360 with similar claims. ADT also has a lawsuit against Vivint that was filed in federal court in Miami in 2020. Vivint previously settled a similar lawsuit with ADT, agreeing to pay $10 million to ADT in 2017 in exchange for a release and non-admission of liability.