Tyco International: Mkt Cap $20.23bn (as of 07/03/2014)
The Carlyle Group: Mkt Cap $1.72bn (as of 07/03/2014)

On 3rd March, Tyco, the world’s largest fire alarm and security system company, announced that it will be selling its Korean unit ADT Korea to the private equity Carlyle Group. Carlyle is paying $1.93bn in cash, making it the largest PE buyout in Korea since 2008. The deal will be split into two parts: equity from Carlyle Asia Partners IV and Carlyle Partners IV and debt financing from Korea Exchange Bank, KookminBank, Industrial Bank of Korea, Korea Investment & Securities and UBS AG.

Since the beginning of this year, South Korean firms have been among the most targeted in Asia for leveraged-buyout deals, capturing 26.7% of the market share in Asia, second only to China. Indeed, South Korea has recently become an extremely attractive market for private equity, due to the maturity of its economy and the predominance of larger deals, where the buyer can take full control of the target, without running into political opposition as could happen in other Asian countries.

The Swiss-based and NYSE-listed conglomerate became a much smaller firm when it spun off its home security monitoring business in North America, giving birth to ADT Corporation in 2012. ADT Korea, which includes Tyco Fire & Security Services Korea Co. Ltd. and its subsidiaries ADT Caps Co., Ltd., Capstec Co., Ltd. and ADT Security Co., Ltd, was established in 1971 and is today the leading company in Korea, providing security services to about 475,000 businesses and residential customers, with services encompassing from central monitoring services, with video surveillance and dispatch, to access control and other customized security solutions as well as guarding services. The revenues and income for the company in 2014 are expected to be respectively $600mm, up from $560mm in 2013, and $150. It has an operating margin of about 21%, Ebitda margin of 30% and contributes to the EPS of Tyco for about 20 cents. Despite the profitability and soundness of its business, Tyco is aiming at cashing in the value generated over time by ADT Korea. The net value expected from the transaction would be around $1.85bn and Tyco would redeploy it in strategic acquisitions, share buybacks or other corporate purposes in order to maximize shareholder’s value.

The Carlyle Group is an American-based global asset management firm with approximately $189bn of assets. The company is specialized in private equity and operates also in business areas as real assets, market strategies and fund of funds. Carlyle, founded by William Conway, Daniel D’Aniello and David Rubenstein has invested more than $920mm of equity in 17 transactions in South Korea in the last years. The firm’s current investments in the country comprehend KorAm Bank, Hyundai HCN, EO Technics, Tapex and Yakjin Trading. Sanghyun Lee, managing director on the Asia buyout team for Carlyne, said that “ADT Korea is a highly stable and profitable business with attractive market positioning, strong brand and excellent cash flow profile”. Indeed, given the fact that the security industry is “under-penetrated” in South Korea, the deal would represent a great opportunity for the American-based Carlyle to leverage on this sector in order to strengthen its position in this market and to support future growth.

Carlyle’s stock price decreased 2.1% from $36.27 to $35.50 (as of 03/03/2014). While major U.S. indexes declined on that day, Tyco rose 2% to $43.02 (as of 03/03/2014), representing the fifth-largest advance on S&P 500.

Morgan Stanley acted as Tyco’s financial adviser.

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