A Lollapalooza For Huizenga
It can't be easy to find a match made in heaven for a company with core businesses in such prosaic areas as waste, burglar alarms, and used cars. But with the $4.9 billion bid for ADT Ltd. on July 1, H. Wayne Huizenga, chairman and CEO of Republic Industries Inc., seems to have done it. The Huizenga team is already gloating. "I've done probably over 200 acquisitions," says Steven R. Berrard, president and CEO of Republic's AutoNation unit and former head of Blockbuster Entertainment Corp., "and this is probably the finest fit we've ever done."
It's also Huizenga following his tried-and-true strategy of targeting cash-rich industries ripe for rapid-fire consolidation. And this time he's got plenty of red-hot Republic stock to fund his acquisition spree. When Huizenga's group paid more than $100 million for control of Republic in 1995, it was a tiny waste management company. It has since made 18 acquisitions. Now, backed by the reputation Huizenga honed at Blockbuster and waste giant WMX Technologies Inc., its shares trade at an incredible 130 times earnings. The ADT deal catapults Republic to a leadership spot in two of its three core businesses.
In a heartbeat, Republic attains the No.1 spot in electronic security, with 1.7 million customers worldwide, up from No.7. The goal: take advantage of ADT's strong name in the home security market, which is expanding at 15%-plus annually. With that business booming, Republic can more easily finance its plan to be No.1 in developing a nationwide chain of used-car megadealerships. Last year, Huizenga founded Fort Lauderdale-based Auto Nation, which in April he sold to Republic for $250 million. In June, Republic bid $95 million for CarChoice in Bloomfield Hills, Mich.
ADT may help Huizenga jump-start his used-car operation. The company's 29 reconditioning centers save Republic some $100 million it would have had to spend to turn clunkers into shiny, smooth-running cars. Conveniently, they're located in many of the same sites AutoNation has targeted for the 80 superstores it intends to open in the next five years. AutoNation will open its first center in Coconut Creek, Fla., in September, although once the CarChoice deal closes, it will have two others in operation.
By acquiring ADT, Republic will gain a direct pipeline to the used and leased cars auto makers sell off by the thousands. That's because ADT is the nation's No.2 auto auctioneer, behind Manheim Auctions Inc., a unit of Atlanta's Cox Enterprises Inc. "It really gives us a further relationship with suppliers and manufacturers," says Berrard. That's something traditional car dealers had hoped the emerging used-car megadealers would never get.
All this put competitors such as CarMax, a unit of Circuit City Superstores Inc., and Driver's Mart Worldwide, a network of big dealers in 31 states, at a disadvantage unless they respond. Predicts Donald L. Keithley, a partner at auto researchers J.D. Power & Associates: "Driver's Mart and CarMax are going to have to start spending serious money to keep up with this."
CAUSE FOR ALARMS? Of course, Huizenga won't be ignoring the opportunities in Republic's other businesses. The deal with ADT will give it a toehold in the retail home security market; ADT has sewn up sales agreements with the Radio Shack unit of Tandy Corp., and a marketing agreement with HFS, the fast-growing franchisor of hotels and real estate brokerages. Republic even sees synergies between the auto and security units, says Berrard: "Think of putting a security system in each car we sell." Huizenga is also building up Republic's waste management business: Just since May, it has paid more than $500 million to acquire two rivals.
In the meantime, Republic insists the ADT deal will add to rather than dilute earnings this year. Before ADT, Republic's revenues were expected to approach $1 billion this year. If the deal goes through, investors figure, they'll rise to about $2.5 billion. But such estimates tend to become outdated quickly in Wayne Huizenga's acquisition-a-minute world. "Most people have been thinking of consolidation as happening at the speed of a baseball game," says Frederick R. Kobrick, a portfolio manager at Boston-based State Street Research, which owns 5 million Republic shares. "But it really happens at the speed of basketball, and these guys play at basketball speed." Now all they need is for ADT to be a slam dunk.