NRG Energy to Buy Vivint Smart Home in $5.8 Billion Deal

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  • #48909
    MoneyNeverSleeps
    Participant

    NRG Energy Inc. on Tuesday said it agreed to buy Vivint Smart Home Inc., for $2.8 billion in cash the assumption of $2.4 billion of the company’s debt
    [See the full post at: NRG Energy to Buy Vivint Smart Home in $5.8 Billion Deal]

    #48979
    Truman
    Participant

    A steep 34% premium for VVNT based on yesterday’s closing price.

    There may be some sticker shock over that $5.2 bln price tag (inclusive of $2.4 bln in debt) from NRG’s investors, explaining why the stock is getting hit hard on the acquisition news.

    At about 3x estimated FY23 sales, the buyout price doesn’t seem too egregious at first blush. However, when considering that VVNT isn’t profitable, posting a net loss of nearly $(72) mln for the nine months ended September 30, 2022, the offer price begins to look much more generous.

    #48980
    Truman
    Participant

    Questioning the timing of acquiring a consumer-based company with exposure to the slowing housing market in this economic climate.

    VVNT sells, installs, and monitors smart home security products that sync up with other devices such as Amazon (AMZN) Echo and Google (GOOG) Home.

    #48981
    Truman
    Participant

    VVNT solid Q3,in which it easily beat EPS estimates as average monthly recurring revenue per user increased to an all-time high of $69.76.
    Plus, the attrition rate improved by 40 bps to 11.0%, near a record low.

    Th economy is what makes this acquisition a risky proposition, especially if NRG’s free cash flow shrinks due to lower electricity demand in a recessionary environment. NRG intends to use excess free cash flow in 2023 to finance the deal and pay down acquisition-related debt.

    Although NRG plans to return to its dividend growth policy in 2024, there’s likely some disappointment that the company is deviating from its typical capital allocation strategy as macro-related risks increase.

    #48982
    Truman
    Participant

    For NRG, VVNT will diversify its customer base while adding a subscription-based model to the mix. There will also be significant cross-selling opportunities that increase the customer lifetime value.

    Overall, though, this acquisition adds considerable risk to a steady, dividend paying stock, and that isn’t going over too well with NRG’s investors.

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