In this Research Note, we examine the ADT Commercial fire and security business, based on their 2021 Results, 1^st March 2022 Investor Day presentation and strategy throughout 2021.

ADT is the provider of security alarms and monitoring services for the smart home and small business sector in the United States. With revenues of $5.3 billion in 2021, ADT reports its financials in three segments: Consumer and Small Business (CSB), Commercial and Solar.  

The ADT Commercial segment (21% of total 2021 revenues) sells, installs, integrates, maintains and inspects commercial building safety and management technologies, which include fire detection and suppression, video surveillance, and access control systems. Customers in the commercial segment, accounting for 19% of the total customer base, are comprised of larger businesses with more expansive facilities (typically larger than 10,000 square feet) and multi-site operations, which often require more sophisticated integrated solutions. The market is characterized by high penetration rates, driven in part by fire and building codes and insurance requirements, and by a high degree of complexity with respect to system installations.

The segment reported a 2021 revenue growth of 13% year over year to $1,114 million. This performance was driven by an increase in installation revenue due to the impact from COVID-19 during the prior year as well as an increase in monitoring and services revenue due to higher recurring revenue, improved customer retention, and acquisitions. Installation revenues accounted for 57% of total ADT Commercial sales while monitoring and services accounted for the remaining 43%. ADT expects a 6% CAGR 2020 to 2025 in the commercial sector, with a goal to achieve over $1.6 billion revenues by 2025.

The Commercial business has a strong track record of growth with 28% CAGR since 2016, achieved through M&A with 12 tuck-in acquisitions since their IPO in 2018.

• In October 2021, the purchase of Edwards Electronic Systems further deepened ADT Commercial’s integration capabilities and fire and life safety expertise to serve mid-market, national and large-scale commercial customers in the Carolinas region.
• In March 2021, Las Vegas-based SAFE Electronics Inc., specialized in the system design and installation of fire alarm and suppression systems, security alarms, video surveillance and access control, continued ADT’s strategy to expand its nationwide geographic footprint in its commercial business.

Previous commercial fire alarm detection, installation, and service acquisitions include Denver-based Systems Group, Fusion Fire Protection, based in Hanover, Md and Red Hawk Fire & Security.

Acquisition of commercial security integration specialists include N.J.-based integrator Deterrent Technologies, Marietta, Ga.-based Critical Systems, Access Systems Integration, Acme Security Systems and Aronson Security Group.

Key vertical markets include banking, healthcare, commercial real estate and retail, with plans to expand into Government, Energy and Smart Cities.

In Feb 2021, ADT Commercial announced its expansion into the Electronic Article Surveillance (EAS) market through a strategic alliance with WG Security Products, Inc. ADT Commercial will install and service WG Security Product EAS portfolio in the U.S., including a full range of detection systems, hard tags, specialty tags, disposable labels, deactivation devices and detachers. 

Another significant strategic partnership with the potential to disrupt the $50 billion guarding industry is ADT’s investment in robotic solutions. ADT Commercial has recently established an Innovation Lab based in Dallas, Texas with its first project scheduled to introduce humanoid robots to the security space. Through a partnership with Halodi Robotics, a Norway-based provider of humanoid robotic solutions in physical security, retail and healthcare applications, the Lab is working on use cases for customers, with pilot projects expected in their facilities early in 2022.

Halodi was selected to be a partner of ADT Commercial in April 2021, when they completed a strategic investment in the startup. The contract with ADT provides Halodi Robotics with around NOK 25m (around $2.75m)  in fresh capital, and gives ADT the opportunity to double its investment if the sales target is achieved. In May 2021, ADT Commercial also participated in Halodi’s Series A $10.1m funding round. In October, Halodi announced it was running tests and conducting robot demos on the ground in Dallas with robots purchased by ADT Commercial.

The US market in which ADT Commercial operates, is highly fragmented with a limited number of national competitors.  However, Convergint outpaces ADT with a $1.8 billion systems integration business while the December 2021 acquisition of Stanley Security by Securitas creates another strong opponent in the US market.

This article was written by Daphne Tomlinson, Senior Research Associate at Memoori.