SYDNEY: Home security provider Scout Security Ltd (ASX: SCT) has signed a Non-Binding Letter of Intent (LOI) outlining the terms for its potential acquisition of home security technology company Roo Inc as a merger of equals.

Roo Inc is the holding company for Kangaroo, a New York-based DIY home security  technology company. Like Scout, Kangaroo offers a simple, secure and low-cost DIY home security service that connects security hardware to a smartphone monitoring app. Kangaroo offers a suite of camera, doorbell and sensor hardware connected to its mobile app, along with professional monitoring plans.

Roo was incorporated in February 2018 and has invested over $US20m in R&D, including the development of a “Privacy Camera” with patent protection.

The company has pioneered the packaging theft coverage with its offering, and has also incubated a new business, Dory an automated online platform offered through a web application that finds and matches customers of security and smart home companies with hidden insurance policy savings, offering recurring discounts to customers every time their policies renew.

Kangaroo has 800,000 total users primarily in the United States, with 35,000 paying subscribers providing approximately US$1.5m of annualised recurring revenue (ARR), in addition to revenue from hardware sales. Kangaroo has also built a commercial presence in Australia, with its hardware available online through retailers including JB HiFi and Harvey Norman. Its team has a presence in New York City, Wroclaw, Shenzhen and Manila.

Scout expects to realise synergies from product development, corporate overheads, management, customer support, sales and marketing activities and through the cross-sell of insurance, hardware and motion sensing security products. Although Kangaroo’s Dory business is in pilot stage, the Company has also identified potential to offer Dory to Scout’s direct and white-label customers, as well as to other industry participants.

It is proposed that the company will acquire Roo via one of the two following structures, each of which value Roo at $US7.1m (A$10.3m)

Scout Security Managing Director, Ryan McCall, said: “We are delighted to have the opportunity to welcome Roo and its customers to the Scout Security group. Kangaroo has a great brand and is an established provider of DIY home security solutions. This business strongly complements our existing Scout Alarm footprint, presenting investors with an EBITDA positive combined entity with a rapid path to positive cash flow generation.

“With approximately 800,000 total users and 35,000 paying subscribers, acquiring Roo would allow Scout to take a further step towards increasing its financial and operational scale while diversifying its asset portfolio and growing Scout’s base of annualised recurring revenue by more than 100%.

“We expect this acquisition to expand the Company’s reach to a larger and more diversified international market and also unlock potential for investors to materially re-rate the valuation of our businesses. Combining Scout and Roo is the first step in a new stage for the group as we endeavour to further evaluate more roll-up opportunities in the security, IoT, and camera markets. We are therefore excited by the opportunity, and we thank our investors for their ongoing support.”

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