has secured investments totaling $1.5 billion from State Farm and a partnership aimed at expanding the security company’s customer base and improving risk-mitigation for insured homeowners, according to people familiar with the matter.
Under the deal, which is expected to be announced later Tuesday, State Farm will spend $1.2 billion to buy 133.3 million ADT shares, or about 15% of the company, the people said. That represents a share price of $9, above ADT’s Friday close of $7.21.
The closely held Bloomington, Ill., insurer will also invest up to $300 million in ADT to fund product and technology innovation, marketing and customer acquisition and will get a seat on ADT’s board, the people said.
Google, which previously invested $450 million in Boca Raton, Fla.-based ADT for a 6.6% stake and committed $150 million toward engineering, designing and marketing of new products, is pledging up to $150 million more for those areas, the people said.
To avoid dilution, ADT plans to use the proceeds of the State Farm equity investment to buy back up to 133.3 million shares of its stock at $9 apiece, some of the people said.
Home insurers, including State Farm, have long offered discounts to policyholders who have a home-security system. ADT and State Farm are hoping to go beyond that by encouraging more of State Farm’s 13.7 million homeowners’-insurance customers to purchase ADT systems for leak detection and carbon monoxide and smoke detection, in addition to protection against an intrusion.
For ADT, the partnership is aimed at lowering its customer-acquisition costs as State Farm’s 19,400 agents become a new channel to introduce its offerings, the people said. ADT also hopes to improve its customer retention, which currently averages about eight years compared with nearly 20 years for people who bundle homeowners’ and auto insurance with State Farm.
State Farm, for its part, wants to help its customers avoid losses instead of simply handling recoveries after they occur.
The two companies want to use data from Google, whose Nest hardware ADT already sells, to assist with planning for what the future of a connected home might look like. One area of focus will be to improve leak detection, a major headache for home insurers.
Apollo Global Management Inc.,
ADT’s majority shareholder, has committed to backstopping the share-buyback offer, some of the people familiar with the matter said. Google has agreed not to sell any of its shares in the tender offer, they said.
Write to Miriam Gottfried at [email protected]
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