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About the Authors:
David Gearhart, CFA
Vice President
David Gearhart is a vice president specializing in research and investment in software-as-a-service (SaaS) and the Internet of Things sector and has played a key role in establishing First Analysis’s Internet of Things franchise. He is a thought leader in his sectors, having authored several widely read white papers. He uses his industry knowledge and expansive network to uncover promising investment opportunities and help companies navigate their strategic paths and accelerate growth. Prior to joining First Analysis in 2011, he was an accountant with The Northern Trust Co. and an options broker with American Option Services. He earned a bachelor’s degree from Purdue University with a concentration in economics and finance and his MBA at DePaul University with a focus on finance and entrepreneurship. He is a CFA charterholder.
Howard Smith
Managing Director
Howard Smith is a managing director (office of the president) specializing in research and investment in software-as-a-service (SaaS) businesses and other business models based on information technology, particularly Internet of Things, cybersecurity, and internet infrastructure. He also built the firm’s historical research franchises in call centers and computer telephony. He is a thought leader in his sectors, having authored numerous widely read white papers. He uses his industry knowledge and expansive network to uncover promising investment opportunities and help companies navigate their strategic paths and accelerate growth. His work has been cited for excellence by the Wall Street Journal and other publications. Prior to joining First Analysis in 1994, he was a senior tax consultant with Arthur Andersen & Co. He earned an MBA from the University of Chicago and a bachelor’s degree in accounting from the University of Illinois at Urbana-Champaign. He is a certified public accountant.
First Analysis Internet of Things Team
Howard Smith
Managing Director
David Gearhart
Vice President
Matthew Nicklin
Managing Director
First Analysis Quarterly Insights
Internet of Things: Smart Home
ADT-Google partnership likely to spark increased strategic, transaction activity
September 4, 2020
  • ADT (ADT), the leader in monitored security services, plans to combine its sales, installation, support and professional monitoring services with Google’s (GOOG) Nest product line and Google software to initially target residential security and other smart home market opportunities in the United States.
  • The $450 million deal is the largest deal in smart home since Amazon’s (AMZN) $1 billion acquisition of Ring in May 2018, and it represents the latest in a series of efforts by Google to build Nest, which it acquired for $3.2 billion in 2014, into a more substantial business and improve its performance. Given the exclusive nature of the arrangement and ADT’s more than 6.5 million residential security subscribers – far more than the two next-largest players – we foresee headwinds for ADT’s existing software and hardware technology partners, including Alarm.com (ALRM) and Resideo (REZI). But given the potential for the integration to deepen Google’s already pervasive reach into everyday life, we expect the partnership to also increase consumers’ privacy concerns and drive some to alternative solutions.
  • We expect the partnership to trigger an increase in smart home industry activity, including increased mergers and acquisitions, strategic investment, and new partnerships.

TABLE OF CONTENTS

Includes discussion of AAPL, ADT, ALRM, AMZN, GOOG, SCTY, SSNLF, VVNT and one private company

Yet another move by Google after several efforts to change its fortunes in smart home

Potential ramifications

Headwind to technology partners, including Alarm.com

Privacy concerns from ADT-Google partnership may be tailwind to other players

Competitive response, including elevated M&A

IoT universe outperforms S&P 500

M&A volume remains slow but includes some major transactions

Private placement activity accelerates in discounted IoT companies

Introduction

ADT, the leader in monitored security services, and internet-services giant Google announced in early August a long-term strategic partnership. Under the agreement, ADT is combining its sales, installation, support and professional monitoring services with the Nest product line and Google software to target opportunities in the U.S. residential security market. ADT plans to integrate existing Nest hardware – including thermostats, smoke alarms, video doorbells, smart displays, sensors and security cameras – into ADT’s security platform over time, as well as Google’s machine learning, video analytics and data storage capabilities. ADT intends to go to market with some Nest products later this year as they become integrated and transition over time to use Google hardware exclusively to enable all professionally installed homes; ADT plans to continue selling its proprietary Blue do-it-yourself (DIY) product.

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