Google has struck an exclusive $750m partnership with ADT to sell and develop its Nest smart home products, sending shares in the US security provider soaring to levels not seen since it was relisted by its private equity owners two years ago.
The deal entails Google taking a 7 per cent stake in ADT for $450m. In return, ADT will go from selling a range of cameras and other devices to only selling Nest products to consumers and small businesses.
The two companies will each put in another $150m in three tranches over the coming years, if certain conditions are met, towards marketing, training and product development.
“This is transformational for us,” said Jim DeVries, chief executive of ADT, as its shares leapt by more than two-thirds in early trading on Monday. “This partnership with Google gives us an opportunity to absolutely accelerate our ability to compete in the smart-home space.”
The alliance comes at a time when Silicon Valley’s dealmaking has come under extra scrutiny by antitrust regulators in the US and Europe.
ADT’s 20,000-person sales and installation team will help distribute Nest’s internet-connected cameras, thermostats and smart speakers to residential and small business customers.
As well as expanding distribution and integration, Google’s investment will allow it to sideline competitors such as Amazon’s Ring cameras and Echo smart-home devices. Under the terms of the agreement, which regulatory filings say runs for seven years, ADT will exclusively sell Nest smart-home products, though larger corporate buyers will still be able to opt for other solutions.
“When it comes to hardware we have historically largely been agnostic,” Mr DeVries said. In future, ADT “will be exclusive with Google”, he said, with any kind of device that Nest does not make itself — such as garage-door openers — expected to integrate with its group’s smart-home platform.
ADT will also incorporate Google’s video and analytics technology, including its Nest Aware subscription-monitoring service.
Rishi Chandra, vice-president and general manager of Nest, said: “Over time, Nest’s devices, powered by Google’s machine-learning capabilities will enhance ADT’s security monitoring and become the cornerstone of ADT’s smart-home offering.”
ADT was taken private by Apollo for about $6.9bn, or $12.3bn including debt, in 2016, before relisting again less than two years later.
At Friday’s close, ADT’s market capitalisation stood at about $6.5bn. In early trading on Monday, its shares shot up more than 80 per cent to more than $16, higher than 2018’s $14 listing price for the first time since the initial public offering and pegging its valuation at more than $12bn.
Asked if Google explored buying ADT outright, Mr DeVries said he “can’t speak for Google’s future plans”. He said there was “no discussion” about ADT acquiring Nest, which Google acquired for $3.2bn in 2014.
Under the terms of the two companies’ agreement, Google’s share ownership is limited to 9.9 per cent of ADT and it cannot sell down its stake until three years after the deal closes, unless the security provider fails to meet certain obligations. Any future acquirer of ADT’s consumer business would have to gain Google’s approval, or strike a similar partnership with Nest.
In addition to the Google partnership, ADT gave a confident trading update on Monday. It said its “performance strengthened in each successive month during the second quarter”, with net losses flat compared with the same period a year earlier. The group will report its full second-quarter results on Wednesday.
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