In a year that saw ADT (No. 1 on the SDM 100) buy Broadview Security (No. 2 on the SDM 100) and Protection One (No. 3 on the SDM 100) acquired by GTCR, 2010 came to a close with one more major acquisition in the security industry. After months of speculation that Monitronics International Inc. (No. 4 on the SDM 100) was on the sale block, Ascent Media Corporation, Englewood. Colo., announced it acquired Monitronics. That’s all four companies at the top of the SDM 100 involved in an acquisition in the same year.
According to a press release from Ascent Media Corporation, the transaction was valued at approximately $1.2 billion, exclusive of certain hedge-related and other liabilities but including the assumption of Monitronics’ existing structured financing. The cash portion of the merger consideration comprised an aggregate of $413 million and was funded by Ascent from cash on hand and $105 million in borrowings under a new $175 million credit facility.
Headquartered in Dallas, Monitronics provides monitored business and home security system services to more than 665,000 residential and commercial customers. Monitronics’ long-term monitoring contracts provide high margin, monthly recurring revenues that result in predictable and stable cash flow, Ascent commented in its press release. According to Ascent, Monitronics delivered revenue of $272 million and EBITDA of $187 million in its fiscal year ended June 30, 2010, increases of 16 percent and 22 percent respectively over 2009. In the 12 years from fiscal year ended June 30, 1998 to fiscal year ended June 30, 2010, Monitronics generated 22 percent compounded annual growth of revenue, making it one of the fastest growing companies in the industry. Monitronics was also just named 2010 North American Alarm Monitoring Residential Security Company of the Year by Frost & Sullivan (See “Frost & Sullivan Awards Monitronics as Company of the Year” on page 32 for more information).
Ascent’s chief executive officer, William Fitzgerald commented, “We are pleased to announce this transaction that addresses AMC’s stated objective of acquiring an operating company with proven management that exhibits an impressive track record of success; a subscription-based business that delivers solid, predictable revenue and cash flow; and a business capable of sustaining growth in varying economic conditions. Monitronics, with its 16 consecutive years of revenue and EBITDA growth, meets all of these criteria. We look forward to the ongoing success of Monitronics under the continued stewardship of Mike Haislip, Mike Meyers and the entire Monitronics team and are confident that this transaction will provide attractive returns.”
When describing the sale, Ascent pointed out that, unlike traditional security monitoring business models, Monitronics utilizes an exclusive nationwide dealer network to sell, install and service the security systems it monitors. Monitronics purchases monitoring contracts from dealers and provides subscribers with a full spectrum of security alarm services including monitoring, customer service and technical support. The dealer-based business model allows Monitronics to grow its subscriber base without employing a national sales and installation force. Additionally, Monitronics outsources on-site technical support to its dealer network, further reducing expenses and driving recurring high margin revenue. The net result has been strong operating cash flow and the generation of high EBITDA margins which reached 68.6 percent in the fiscal year ended June 30, 2010.
Mike Haislip, president and chief executive officer of Monitronics stated, “This is an opportunistic time to participate in the security monitoring industry and the transaction with Ascent provides Monitronics with a fantastic platform to further strengthen our leadership position in the $29 billion security market. Our unique business model that starts with our dealer network, allows us to build our subscriber base and scale the business, generating margins that can’t easily be matched by others in the industry. We look forward to working with Ascent on our growth plans and believe it will result in strong value creation for customers, shareholders and other stakeholders.”
Haislip added, “We would also like to thank ABRY for their ownership and support over the years.”