What's going on?
Investment firm Apollo Global Management has agreed to buy ADT, the home-security company, for almost $7 billion. It shows that acquisitions continue, despite recent market troubles.
What does this mean?
Interestingly, Apollo will be funding the deal by issuing almost $5 billion of debt. Investors that lend the money to Apollo are taking on relatively risky debt (versus say, debt from Apple or another very large company). That’s the sort of risky debt that investors might be expected to shy away from given the recent market turbulence. So, it’s good news for markets that such a transaction can, apparently, get done in such a challenging environment.
Why should I care?
The bigger picture:(Some) M&A is still getting done. Last year was the biggest year ever for mergers and acquisitions (a.k.a. companies buying or merging with one another). 2016 has started with a relative whimper, but this is the third major deal after Shire buying Baxalta and ChemChina buying Syngenta. It’s good news for banks and other firms that profit from such deals getting done, as well as a moderately positive sentiment indicator for the overall stock market (deal making tends to be good for stocks… just ask ADT’s shareholders).
For the stocks: ADT stock soared. Apollo agreed to pay 56% more than Friday’s closing price. Apollo itself is a public company and its stock lost almost half its value last year. That prompted Apollo to announce a few weeks ago that it would buyback a chunk of its own stock, as it believed it was fundamentally undervalued (partly because deals such as this had become more difficult to put together). Apollo’s stock was up slightly on the ADT news (and is up more than 30% since its low in January).