Control4 bought for $680mn in anticlimactic vertical move

In what seems like a somewhat unfitting end for such an important player in this game, Control4 has been bought by SnapAV – a firm that makes home audio and security equipment aimed at professional installers. It’s a vertical move that sees SnapAV pay $680mn for what is essentially part of its own supply chain, but given that Control4 was positioned to become a king-maker of sorts, the deal feels rather underwhelming.

Perhaps we’re just a little salty about the recent goings-on in Westeros, but we’d normally be a bit more enthusiastic about a deal of this size. In time, perhaps this will obviously be a fitting end, although both Control4 and SnapAV would probably like to stress that there’s more to their now-joined story.

For Control4 shareholders, the 40% premium will be much appreciated. The all-cash deal is a 38% premium on the 30-day average trading price, and new investment will be made into SnapAV and Control4 by SnapAV’s majority shareholder – private equity investment outfit Hellman & Friedman.

“The combination of Control4 and SnapAV is transformative for the smart home industry,” Erik Ragatz, partner at Hellman & Friedman and chairman of the Board of Directors of SnapAV, said in the announcement. “The increased resources of the combined company will enable it to invest more to drive innovation and deliver best-in-class features, functionality and products. This combination will also allow us to support integrators more effectively than ever before in pursuit of our joint goal of bringing the promise of the connected home to life.”

The announcement says that the joined-up strategy will provide integrators with a ‘true one-stop shop’ that offers a complete product portfolio of custom smart home and automation solutions. They add that they will be better able to drive innovation and integration, with leading technology, a broad geographic footprint, and exceptional service organizations apparently.

Collectively, there are now 1,200 employees, with which to pursue this goal. Hellman & Friedman acquired SnapAV back in June 2017, and shortly thereafter, SnapAV went out and bought Allnet Distributing, a value-add reseller for B2B consumer electronics equipment for AV installations.

There’s a decent undercurrent of discontent or skepticism in the installer community, regarding the move. Control4 used to run on a certification-based system, whereby it would train installers how to set up a Control4 environment, using its hardware and software to power the smart home and AV equipment being used. End-customers approach approved Control4 dealers, who then purchase equipment and services from Control4.

Now under SnapAV, it’s not clear how that approach is going to be incorporated into the reseller/distributor approach that SnapAV focuses on – perhaps opening the door to Control4 for more of the pro-installers, thanks to easier access. SnapAV said it was planning on a ‘transformational transaction’ under its new owners, which has now led it to Control4.

CEPro’s Julie Jacobson called the acquisition back in June 2017, shortly after SnapAV was acquired. Jacobson ranked the prospective targets, with Control4 coming out on top, and while to this end, the deal was perhaps inevitable, it still seems pretty uninspiring.

There’s a slim chance that SnapAV now really focuses on expanding out of its core US market, using the economies of scale it can drum up for its own equipment (now augmented by Control4’s products, software, and services), to aggressively chase new overseas opportunities.

However, the professionally installed smart home is still a niche proposition. It’s a very expensive proposition, compared to what a consumer could do with an off-the-shelf DIY package centered around an Amazon Echo or a Google Nest Home, but of course, it also enjoys much better margins because of this high-end focus.

As an inherently non-direct-to-consumer model, these homes are not going to achieve much in the way of mass market scale or penetration. There are signs that home construction firms are working with pro-installers more frequently, which may well drive some growth in the total number of smart homes, but as our recent forecasting has shown, the pro-install segment remains a very small segment of the total number of smart homes going forward.

Not that there’s anything wrong with that, but we were hoping for something much more ambitious out of Control4, or rather the firm that bought it. Apple getting involved would have been a game-changer, and perhaps one of the quickest ways that it could turn HomeKit around and leverage the higher ARPU and disposable income found in its typical customers. Had Amazon or Google (Nest) bought Control4, it likely would have triggered a similar move in response from its rival.

Instead, we get the impression that this is going to remain quite US-centric, with the private equity firm looking to quickly swell the business and then exit at a tidy profit. Overseas expansions are difficult, and there aren’t really comparable expansion targets in Europe – which is rather fragmented.