Scout Security Ltd (ASX:SCT) has signed a non-binding letter of intent (LOI), proposing an acquisition of Roo Inc as a ‘merger of equals’.

Scout – a home security provider which is also an official partner of Amazon Alexa and Google Assistant – has expressed interest in combining with Roo, which is the holding company for New York-based DIY home security technology company Kangaroo.

The deal would be advantageous to both due to the similar synergies of the two companies – which both provide a security service connecting security hardware to a smartphone monitoring app.

For Scout, the attraction of going into business with Kangaroo is partly due to the company’s reach: with 800,000 users (mostly in the US), plus repeated revenue of US$1.5 million from 35,000 paid subscribers, and a presence in Australia as well, with JB HiFi and Harvey Norman both selling its hardware.

Roo’s investment of US$20M in R&D has also proven impressive, yielding the development of a ‘Privacy Camera’ with patent protection, plus an offering of packaging theft coverage and an automated online platform – Dory – which is offered through a web application which matches security and smart home company customers with hidden insurance policy savings.

The latter allows customers to access recurring discounts when they renew their policies.

The two parties have carried out preliminary due diligence on the potential integration, finding cost and revenue synergies which could sustain the resulting entity, with breakeven to positive cash flow.

Managing director Ryan McCall said he was delighted to welcome Roo to the Scout Security group.

“Kangaroo has a great brand and is an established provider of DIY home security solutions,” he said.

“This business strongly complements our existing Scout Alarm footprint, presenting investors with an EBITDA positive combined entity with a rapid path to positivecash 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%.”

Scout shares have been trading flat on the news, at 0.7 cents.

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