State Farm to Take 15% ADT Stake in Smart Home Security Partnership

Privately held State Farm is taking a 15% stake in security firm ADT, totaling about $1.2 billion with the purchase of 133 million shares at $9 per share, the companies announced Tuesday. ADT stock jumped 16.4% on the news, closing at $8.39.

The insurer will also invest up to $300 million in an “opportunity fund” to support innovation, technology and marketing for smart home-related products that “differentiate and improve the customer experience for homeowners,” the companies said. A focus of the upcoming integrated offering is to detect and mitigate losses due to water, fire, intrusion and other home-related risks, said ADT CEO Jim DeVries on a webcast Tuesday. Management from the companies didn’t take questions, asking analysts instead to submit questions offline.

As part of the announcement, Google committed an incremental $150 million to its existing success fund, earmarked for expanding access to smart home innovation and technologies to more customers via new sales and marketing programs. Google spent $450 million (see 2008040064) for 6.6% of ADT in August 2020 to create “the next generation of the helpful home.” Over time, Google said then, ADT’s thousands of technicians would be able to sell and install Google Assistant-powered Nest cameras and Nest Hub Max.

On Tuesday’s call, DeVries said ADT’s strategic vision of partnering with State Farm will give ADT the chance to “capture a greater share of market by using ADT’s smart home security offerings to drive innovation in homeowners’ insurance.” A first-of-its-kind integrated offering will deliver “substantial customer value using smart home technology” to mitigate losses related to water, fire and intrusion, “moving from a repair and replace model to a predict and prevent mindset," DeVries said.

State Farm is the largest home insurer in the U.S. with 13.7 million homeowner policies in place, with a total 90 million policies and accounts, DeVries said. ADT stock opened Tuesday at $8.09, and DeVries said the agreed share price is an 18% premium to ADT’s trailing 30-day average price, indicating State Farm’s “strong conviction in our shared customer-focused strategy and growth potential.”

ADT plans to use the proceeds from the State Farm investment to “self-tender” up to 133 million shares at $9 per share, which will “eliminate any dilution from State Farm’s equity investment,” DeVries said. ADT’s controlling shareholder, Apollo, will “backstop the entire offering to ensure a full subscription,” he said. Google won't participate in the tender, and ADT’s leadership team agreed not to participate, he said. State Farm will obtain a seat on the ADT board, with Chief Operating Officer Paul Smith the initial designee. The ADT board expanded to 12 to accommodate the addition.

Expanding on the opportunity fund, ADT Chief Financial Officer Ken Porpora said the fund, similar to the structure of the Google success fund, is a way to finance product and technology innovation, customer growth and marketing. ADT will receive the first $150 million of the fund when the transaction closes, expected in Q4.

Jeff Likosar, president-ADT corporate development and chief transformation officer, said the new partnership with State Farm, combined with the existing Google partnership, will help customers manage risks of everyday life. ADT envisions expanded customer benefits including 1) integrated systems that monitor, detect and prevent the risks of water, fire and intrusion, 2) lower homeowner insurance premiums through discounts for homes equipped with ADT smart home security systems and powered by Google devices, and 3) reduced claim frequency and severity through ADT’s smart monitoring technology that enables quick notifications to the homeowner or authorities, he said.

ADT expects its total available market to increase to $150 million by 2025; the partnerships are expected to accelerate its market penetration in fast-growing markets. With the State Farm connection, ADT expects to expand its reach to attract new subscribers and bolster retention with improved solutions. The company will give more detail later this year, Likosar said.