MEMPHIS, Tenn. - Frontdoor, Inc. (NASDAQ: FTDR), a prominent home warranty provider, has announced an agreement to purchase 2-10 Home Buyers Warranty for $585 million in an all-cash deal. This move is set to expand Frontdoor's customer base and open a new sales channel in the home warranty market.
2-10 Home Buyers Warranty, established in 1980 in Denver, specializes in structural warranty protection plans for new homes, covering approximately one in five new homes in the U.S. The company has a strong customer retention rate, largely due to its longstanding relationships with builders.
Bill Cobb, Chairman and CEO of Frontdoor, expressed enthusiasm about the acquisition, which is expected to significantly bolster the company's growth, diversify its offerings, and enhance cross-selling opportunities. Ryan O’Hara, CEO of 2-10 HBW, also remarked on the complementary nature of the two companies' services and the potential for their combined efforts.
The acquisition is anticipated to close in the fourth quarter of 2024, pending regulatory approval and other customary closing conditions. Frontdoor predicts that the addition of 2-10 HBW's business will expand its customer base, currently at 292,000, accelerate revenue growth, and increase earnings, with 2-10 HBW having generated $198 million in revenue and $43 million in Adjusted EBITDA in 2023.
The companies also foresee considerable operating synergies and enhanced financial profiles, expecting the transaction to contribute positively to Adjusted EBITDA and free cash flow generation starting in 2025.
Financing for the acquisition is supported by a fully committed bridge facility and cash, with permanent financing expected to consist mainly of new debt. Financial institutions JPMorgan Chase (NYSE:JPM) Bank, N.A., BofA Securities, Inc., and Wells Fargo Bank, National Association have provided committed financing.
Frontdoor will host a conference call and webcast today to discuss the details of the acquisition. Advisors for the deal include BofA Securities, Inc. and Simpson Thacher & Bartlett LLP for Frontdoor, and Evercore and Ropes & Gray for 2-10 Home Buyers Warranty.
The information in this article is based on a press release statement.
In other recent news, Frontdoor Inc. reported a strong first quarter for 2024, where revenue increased by 3% to $378 million and adjusted EBITDA rose by 33% to $71 million. These results were driven by higher prices and service fees, leading to a 14% growth in gross profit to $195 million. Despite a challenging real estate market causing a decline in demand, Frontdoor is addressing these issues with a brand relaunch and customer service enhancements.
In terms of future growth, the company expects an increase in revenue and adjusted EBITDA in the second quarter and has adjusted its full-year outlook for 2024 upwards. Frontdoor forecasts Q2 revenue to be between $530 million and $540 million, with adjusted EBITDA ranging from $130 million to $140 million. For the full year, the company anticipates revenue between $1.81 billion and $1.84 billion, a gross profit margin of approximately 50%, and adjusted EBITDA between $360 million and $370 million.
These are recent developments, reflecting the company's resilience and adaptability amidst industry challenges. Frontdoor is also expanding into additional on-demand services to drive revenue growth and is seeing success in its new HVAC sales program.
InvestingPro Insights
Frontdoor, Inc. (NASDAQ: FTDR) is making strategic moves to enhance its market position with the acquisition of 2-10 Home Buyers Warranty. InvestingPro data and tips shed light on the company's financial health and market performance, providing investors with a deeper understanding of Frontdoor's potential as it embarks on this expansion.
InvestingPro data indicates that Frontdoor has a market capitalization of $2.77 billion, with a trailing P/E ratio for the last twelve months as of Q1 2024 standing at 14.24. This is complemented by a PEG ratio of just 0.14, suggesting that the company's earnings growth is potentially not fully reflected in its current share price. Additionally, Frontdoor has shown a solid gross profit margin of 50.75% over the same period, highlighting its ability to maintain profitability.
InvestingPro Tips reveal that Frontdoor has a perfect Piotroski Score of 9, which is a strong indicator of the company's financial stability. Furthermore, the management's aggressive share buyback strategy is a vote of confidence in the company's valuation and future prospects. Notably, analysts have revised their earnings upwards for the upcoming period, signaling optimism about Frontdoor's financial performance post-acquisition.
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