Frontdoor (FTDR) acquires 2-10 Home Buyers Warranty for $585 million

Frontdoor, Inc. has announced its acquisition of 2-10 Home Buyers Warranty (2-10 HBW) for a cash transaction valued at $585 million. This acquisition is expected to close in the fourth quarter of 2024, subject to regulatory approval and customary closing conditions.

The strategic and financial rationale behind the acquisition includes accelerating Frontdoor's growth trajectory by diversifying into a new line of business * new home structural warranties. It's expected to expand and diversify Frontdoor's customer base, as 2-10 HBW had approximately 292,000 customers at the end of 2023. Additionally, the acquisition is anticipated to accelerate Frontdoor’s revenue growth, as 2-10 HBW generated approximately $198 million in revenue in 2023.

In terms of earnings, the acquisition is expected to increase Frontdoor’s earnings, as 2-10 HBW had approximately $43 million in adjusted EBITDA in 2023, equivalent to an adjusted EBITDA margin of 21.7%. There is also an expectation of operating synergies with a high confidence of realization by combining operations and driving efficiencies across the consolidated platform.

The transaction details reveal that the acquisition is valued at $585 million in cash, on a cash-free, debt-free basis, and it is supported by a fully committed bridge facility and cash. The permanent financing is expected to consist primarily of new debt.

Furthermore, the acquisition is anticipated to strengthen the combined company’s financial profile and is expected to be additive to adjusted EBITDA and free cash flow generation in 2025, the first anticipated full year of ownership by Frontdoor.

This acquisition is seen as a significant growth catalyst for Frontdoor's business, aligning well with their strategic growth priorities and providing opportunities for cross-selling home warranties and on-demand services. It is also expected to benefit 2-10 Home Buyers Warranty by aligning with Frontdoor’s existing offerings and creating potential for both businesses to prosper in the future.

As a result of these announcements, the company's shares have moved 3.7% on the market, and are now trading at a price of $36.83. If you want to know more, read the company's complete 8-K report here.

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