NRG Energy Inc. agreed to buy home-security business Vivint Smart Home Inc. for $2.8 billion in cash, as the energy-services company pushes to have a presence in more American homes.
NRG said Tuesday it would pay $12 a share for Vivint, which offers integrated home systems that include security, lighting and other services. The price is a 33% premium to Vivint's closing price on Monday of $8.99 a share. The total deal value was $5.2 billion, including debt.
The combination, expected to close in the first quarter of 2023, will allow Houston-based NRG to integrate its home-energy services into Vivint's home system. NRG will also get Vivint's back-end technology, which includes an app for smartphones, as well as a chance to expand its product offerings to include home security and automation.
The NRG's shares fell 15% to $34.78, on pace for their largest one-day decline since March 2021, on pace for their largest one-day decline since March 2021. Vivint shares rose 32% to $11.89.
NRG Chief Executive Mauricio Gutierrez said on a conference call with analysts that they believe that all of these pieces can be connected in a way that provides a seamless experience. That is what NRG and Vivint will do together. According to Gutierrez, NRG will look to cross-sell and bundle the two companies energy and home security products to customers, as one product that could benefit from NRG's battery-storage products. The geographic overlap of NRG and Provo, Utah-based Vivint will allow for rapid deployment in key markets.
The data collected by Vivint will help NRG to integrate its products and improve pricing, Gutierrez said.
The average customer installs about 15 devices in their home, interacts with their smart home system more than 12 times a day and retains service for about nine years, according to the company. It is targeting as much as $1.67 billion in revenue this year.
The deal won't affect the 2023 capital allocation plans of the NRG, Chief Financial Officer Alberto Fornaro said, and the company plans to fully execute its $1 billion stock buyback authorization. The deal will be funded with about 600 million in cash, $900 million from NRG's revolving credit facility and $1.39 billion in new debt and preferred equity.
He said that despite our conversations with the rating agencies, we don't believe that this transaction will have a negative impact on our credit profile.
S&P Global Inc. s credit-ratings firm put NRG's BB issuer credit rating on credit watch negative Tuesday morning, reflecting the possibility that S&P could downgrade the rating by a notch. S&P believes that NRG will fund the deal largely with debt because of the deal carries execution risks, particularly when there is a potential economic downturn.