Why NRG Energy (NRG) Is Buying Vivint Smart Home (VVNT) For $2.8 Billion

By Amit Chowdhry ● Dec 6, 2022
  • NRG Energy (NRG) announced it is buying Vivint Smart Home (VVNT) for $2.8 billion. These are the details.

NRG Energy (NRG) and Vivint Smart Home (VVNT) announced they have entered into a definitive agreement under which NRG will acquire Vivint for $12 per share or $2.8 billion in an all-cash transaction with an implied multiple of 6.3x run-rate Enterprise Value to Adjusted EBITDA. This agreement has been unanimously approved by the boards of directors of both companies.

Vivint Smart Home is a leading smart home platform company whose mission is to help its nearly two million customers live intelligently by providing them with technology, products, and services to create a smarter, more efficient, and safer home. And Vivint delivers an engaging customer experience through multiple devices united into a single expandable platform that incorporates artificial intelligence and machine learning into its operating system. The company’s vertically integrated business model includes hardware, software, sales, installation, support, and professional monitoring, enabling superior customer experiences and a complete end-to-end smart home experience.

This acquisition accelerates the realization of NRG’s consumer-focused growth strategy and creates the leading essential home services platform fueled by market-leading brands and complementary sales channels. And the transaction improves and diversifies NRG’s financial profile while also expanding the total market opportunity available to NRG. The annual run-rate Adjusted EBITDA, inclusive of $100 million of run-rate synergies, is $835 million.

Strategic and Financial Benefits

1.) The combined company will be the leading essential home solutions provider, with an extensive network of approximately 7.4 million customers across North America, that represents a substantial cross-sell opportunity through market-leading brands and complementary sales channels.

2.) The combined company forms a unique end-to-end ecosystem driven by unparalleled data and insights, resulting in a unified customer experience with a high level of engagement.

3.) The transaction will improve and diversify NRG’s financial profile with more predictable earnings through Vivint’s subscription-based model and long customer tenure (nine years).

4.) The transaction exceeds NRG’s investment hurdle rates and is in line with its long-term free cash flow before growth per share growth target.

5.) NRG has a proven track record of integration and synergy realization across a number of acquisitions, including Direct Energy, Stream, and Xoom.

Financial Terms

NRG is going to acquire 100% of the outstanding equity of Vivint for a total transaction value of $5.2 billion, which consists of approximately $2.8 billion in cash and the assumption of $2.4 billion of debt (net of cash), which benefits from attractive terms and pricing. This consideration represents a premium of approximately 33% to Vivint’s closing share price on December 5, 2022.

Capital Allocation Update

NRG’s capital allocation strategy will continue to opportunistically balance its growth, return of capital, and balance sheet objectives. And NRG intends to complete its existing $1 billion share repurchase program over the near term, of which $360 million was remaining as of November 30, 2022. In 2023, NRG expects to use its excess free cash flow to fund the Vivint acquisition, reduce acquisition-related debt, and maintain its common stock dividend growth policy. In 2024, the company plans to return to its 50% return of capital / 50% growth capital allocation policy. NRG remains highly committed to its dividend growth policy, which remains unchanged from previous guidance.

Management remains committed to maintaining its strong balance sheet and credit ratings. And the company expects to achieve its investment grade credit metrics target of 2.50-2.75x Net Debt / Adjusted EBITDA by late 2025 to 2026 through the combination of debt reduction and growth.

KEY QUOTES:

“Last year at our Investor Day, we presented our strategic roadmap to becoming the leading provider of essential services for homes and businesses, informed by consumer trends and underpinned by disciplined execution. The acquisition of Vivint is a transformational step in achieving our vision. Customers want simple, connected, and customized experiences that provide peace of mind. Vivint’s smart home technology strengthens our retail platform, improves our customer experience, and increases customer lifetime value. I am excited to welcome Vivint to the NRG family.”

— Mauricio Gutierrez, President and CEO of NRG

“We are pleased to announce a transaction that delivers immediate and compelling cash value to Vivint’s stockholders while also presenting significant opportunities to drive our company’s continued success in the years to come. Our agreement with NRG is the culmination of our Board’s ongoing pursuit of maximizing value for Vivint stockholders and is a testament to the strength of the Vivint brand, capabilities, and proven industry leadership. We look forward to working with NRG to create exciting opportunities for Vivint as part of a larger platform. On behalf of our Board and management team, I thank the hard-working Vivint employees for the significant role they have played in this important milestone.”

— David Bywater, CEO of Vivint Smart Home