ADT Corp. is locking up a bigger piece of the Canadian security monitoring market, spending $555-million to buy Reliance Protectron Inc. to add 400,000 home and business customers.
Protectron will remain based in Montreal and will keep operating under that name, while ADT’s existing Canadian operations will retain the ADT brand. Florida-based ADT said that “as it strengthens its Canadian focus” some administrative functions that have been run from the U.S. will be moved to Canada.
The companies are similar in size in Canada, each employing about 900 people here, and the transaction will roughly double ADT’s Canadian customer base.
“We think they have a great management team and I just think it was a perfect fit,” said ADT chief executive officer Naren Gursahaney.
The companies are both in the business of wiring homes and businesses with sensors that can detect burglars, blazes or other hazards. The detectors are connected to monitoring centres, which can get in touch with residents or emergency personnel to alert them to trouble. The companies are increasingly providing systems that also enable customers to control their security systems and other home functions remotely.
The market is competitive. In addition to a large number of independent, smaller security providers there are bigger entities such as AlarmForce, ADT and Protectron. What’s more, telecom companies have tried to get into the business. For example, cable company Rogers Communications Inc. is pushing its monitoring product hard.
Mr. Gursahaney said he is confident that ADT can fend off the competition and continue to grow. “When I look at the cable and the telco folks, they’ve been in and out of this market for years. Security is our core business.”
The seller is private-equity firm Alinda Capital Partners, one of the world’s largest infrastructure specialist fund managers. Alinda acquired Protectron when it agreed to buy UE Waterheater Income Fund in 2007 for $1.74-billion. UE sold security services in addition to its main business of water heater rentals. Protectron was originally owned by cable company Videotron and focused mainly on Quebec. In recent years, backed by Alinda, it has expanded in the rest of Canada.
Protectron chief executive officer Daniel Demers said he found out that the agreement had been completed late Tuesday.
“To me it’s really, really great news for me and my team,” he said, because it will enable him to take advantage of ADT’s product development. Combining that with Protectron’s solid customer retention track record should drive expansion, he said.
“If we put that together and we are creative in the way we go to market, it's kind of best of both worlds,” he said.
ADT is by far the largest home security provider in North America, according to a recent note published by Morningstar. The company controls about a quarter of the $11-billion (U.S.) residential market, but new entrants are a threat. In the U.S., the company faces a challenge from AT&T, for example.
“Over time, the industry structure is likely to shift toward large cable and telecom companies that have introduced competing offerings in recent years,” Morningstar analyst James Krapfel wrote.
In Canada, the competition from Rogers – and all the advertising the cable company is buying – has helped highlight the kinds of products that Protectron offers, said Mr. Demers.
“Having Rogers advertise will likely speed up the rate of adoption for these products,” he siad.
One possible advantage for ADT to owning Protectron and keeping the brand is that it may help ADT to expand outside North America. The company only owns the ADT brand in the U.S. and Canada, so it would have to expand internationally under a different brand name.
“Honestly that is one of the attractions of the Protectron brand,” Mr. Gursahaney said.
Editor's Note: An earlier version of this story said that Protectron's chief executive officer had only found out about the sale on Tuesday. This story has been updated to clarify that while he found out the agreement had been completed Tuesday, he was aware of the negotiations before that.
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