(You can find a PDF version of this post here).

Business Summary.

Since APG is one of the newer companies added to our coverage, we wanted to give readers a quick summary of their business as a reminder. If you are familiar with them, you can skip to the update.

APi Group is a global leader in fire and life safety services with over 500 locations worldwide. They focus primarily on statutorily mandated and other contracted services to a diverse collection of industries. They are structured on a regional operating model so each operating group can quickly respond to customer needs and have more ownership over operations. This makes APi Group a sort of “platform” with support for purchasing, back office, and various other support functions, while giving each franchise autonomy to respond to their clients’ needs.

They operate through two segments: 1) Safety Services and 2) Specialty Services. Safety Services comprises about 75% of revenues with Specialty Services accounting for the rest. Safety Services offers mission-critical services for life safety systems such as fire sprinklers, alarm systems, backflow prevention, remote monitoring, access control, and security. Since acquiring Elevated in 2024, they also do elevator maintenance.

Their specialty services offer construction, installation, and servicing for infrastructure & utilities. They also provide specialty contracting, fabrication, and HVAC services. For more info on what all of these services are, please see the Business section in our report.

APi Group’s model is to lead with inspections first. What that means is that they will inspect a customer’s services and then try to win a service contract thereafter. Inspections are very often mandated by law and customers want someone who is well known and competent to avoid any potential issues with their facilities. The inspections are not particularly expensive, but they use them to build a customer connection. After an inspection, APi Group can then help them fix any potential issues with their systems or put them on a schedule for regular service (which is also often required by law).

This differentiates them from their competitors who try to win customer’s service business by doing their construction first and then cross selling a service contract. APi Group’s model is better though because it allows them to avoid having to do lower margin contracts just to win service business. For each $1 in inspection service they earn, they generate $3-4 in service revenue. They also do projects though, so their customers do not have to go to a competitor, which could otherwise potentially open the door for them to lose their service contract. However, they are selective with the projects they take on and avoid “bid-based” work.

The markets they operate in are fairly fragmented with no large player having more than ~10% market share. They can be quite acquisitive but are very disciplined with their purchase prices. Right now they intend to deploy about $250mn a year in bolt-on M&A at mid-single digit EBITDA multiples.

For a more thorough background on APi Group, check out our in-depth research report. Now on to the update.

2Q25 Update.

APG reported a strong 2Q25 with revenue growth accelerating +15% y/y, up from +7% last quarter. Organic growth was strong at +8% y/y versus +2% last Q. Within that, the more important safety services segment grew +5.6% y/y, which is in line with last quarter.

They noted that their inspection revenues (which are housed in the safety services segment) grew double digits for the 20^th straight quarter. This is an important source of revenue because it tends to be a leading indicator for other service revenue down the line. As a reminder, they try to acquire new customers by doing their inspections first and if they have something that needs service, APi Group is well positioned to provide it. They tend to generate $3-4 in service revenue per dollar of inspections.

The specialty service segment saw +13% organic growth. If you recall, they have been rationalizing revenue from this segment as many of the projects they were previously doing were low-margin and occasionally loss-generating. That is why CEO Russell Baker clarified that their backlog (which reached a record $4bn+ this quarter), “focuses on our target end markets and is healthy from a disciplined customer and project selection perspective.” APi Group has been very focused on profitability over volume.

In terms of M&A, they completed 6 acquisitions this quarter, including their second acquisition for their elevator business. They entered into the elevator business just a year ago with a platform acquisition of Elevated and have used that as a base to start to roll-up more elevator operators. They believe there is a $10bn opportunity here despite a couple larger player having a much earlier start (namely Otis, but there are others).

They are on track to deploy $250mn into acquisitions this year, which is up slightly from the ~$220mn they did the last 3 years. APi Group increased their credit facility to $750mn from $500mn and with their leverage ratio at just 2.2x (below their prior target of 2.5x), they are in a good position to continue to be acquisitive. CEO Russell Becker gave some more color on acquisitions and the potential for a larger platform acquisition at the investor day.

They bumped up guidance to $7.65-7.85bn in revenue, increasing the range by $250mn. Adjusted EBITDA was also increased to $1-$1.045, representing a margin of 15% at the midpoint. CFO Glenn Jackola commented “you can think of our EBITDA raise as 1/3 of it driven by our Q2 over delivery, maybe 1/3 of it due to M&A in the quarter and maybe 1/3 of it due to an increase or an improvement in our second half business outlook.”

Business Commentary.

Overall this was a very strong quarter of execution; APi Group continues to deliver on what they set out to.

As a reminder, APG had prior targets they called “13/60/80”, which represented 1) 13% adjusted EBITDA margins, 2) 60% of revenues from inspections, services, & monitoring, and 3) 80% free cash flow conversion. While they hit their 13% adjusted margin target last quarter, this quarter they again cleanly exceeded it with an adjusted EBITDA of 13.7%. This was despite some gross margin pressure driven by rising material costs, increased projects starts, which was offset by some pricing and project discipline. GAAP gross margins contracted 50bps y/y to 31.4%.

At the beginning of May they had an investor day and announced update long-term targets. Their 2028 targets are now called 10/16/60+. Their 2028 targets are 1) over $10bn in revenues, 2) 16%+ adjusted EBITDA margin, 3) 60%+ of revenues from inspections, services, & monitoring, and 4) over$3bn in cumulative adjusted free cash flow through 2028. They also added revenue growth would be supported by mid-single digit organic growth (so can’t be purely from acquisitions).  

The slide below showcases their 2028 targets. Their new 16% adjusted EBITDA target likely translates to about a 14.5% EBIT margin given historical D&A as a % of revenue is 1.5%. In our reverse DCF below we will talk more about margin assumptions.  

We can see below how there is plenty of runway left for M&A growth in all of their markets. On the call they noted that the big spend in data centers is also creating a lot of new opportunities for both of their segments. This is likely one of the larger factors that drove the specialty segment’s organic growth this quarter. Still though, they are broadly diversified across end markets. Although it is an open question if they are willing to increase exposure to data center given it is a fast growing market with a lot of service needs and high quality customers.

CEO Russell Becker summarized the quarter well below. We will next move on to valuation.

Valuation.

With APG stock up 51% YTD, we wanted to refresh our Reverse DCF valuation.

Below we can see that at a stock price of $36, their market cap is $15.3bn. If we assume mature EBITDA margins of 16% (and that D&A is 1.5% of revenue), then that gets us mature margin earnings of $890mn. On an unlevered basis, that is a 20x EV/ Mature Earnings multiple. After adding back in their ~$150mn a year in interest expense, their mature margin P/E multiple is 26x. If we want to look at actual LTM free cash flow, they trade at 27x (on market cap). For context, when we first published our report they traded at 14x mature earnings and 20x free cash flow.

Now to get a better sense of the range of returns an investor may be able to expect, we updated our Reverse DCF. If you recall, we sensitized around EBITDA margins and revenue growth. We raised the EBITDA margin range we sensitized around to 15% at the low end and 20% at the high end. 20% margin is what their top branches do at the store level, so it will be hard to hit that, but it is not impossible with increasing scale and an even more improved operational efficiency. A conservative investor would not want to assume that though. They most recently guided to 16%+ adjusted EBITDA margins by 2028, which feels like a good target: it is ambitious, but not unrealistic. Longer-term they should be able to improve it even more though. (Keep in mind to that we are using unadjusted EBITDA below).  

As you can see below, we made one modification to our typically reverse DCFs though. We tied revenue growth to different cash return scenarios. The idea being that if they aren’t growing much then they presumably aren’t doing much M&A and thus can return more cash. Whereas in contrast if they are growing a lot then they are likely deploying all of their cash flow back into acquisitions.

The outputs for the updated DCF are shown below. At the very conservative end we assume just 3% revenue growth, which shows a 6.4% return. On the more aggressive side we show 16% revenue growth with 20% EBITDA margins for a 12.6% return.

Below you can find some notables from the call.

Earnings Call Notes.  

M&A

• “It’s no different than how we’re looking at our life safety and security businesses where the kind of the new normal from a branch perspective is 20%, and that’s where we’re pushing all of our businesses. So — but at the time of the acquisition, it’s really on par with the fleet average and with the potential to go and improve.”
• “one small business under LOI in our international business as we sit here. And our team is doing diligence on that company as we speak. So there is no question that we’ve opened the aperture up to the international business. I would say that it’s on a country-by-country basis, just like it is for us in North America on a company-by-company basis. In the international business, the country has to be able to kind of accept and integrate that business. And not every one of our businesses internationally has progressed to the point where we feel like they’re ready for a bolt-on, but a number of them are.”
• “I would say the pipeline is robust. I would say the potential is there for us to over-deliver on the $250 million kind of commitment, if you will. But in the same breath, we’re going to be really disciplined. And so if it’s 250, it’s 250; if it’s 235, it’s 235; and if it’s 290, it’s 290.”
• “We accelerated our M&A activity, completing 6 acquisitions, including our second elevator business. We have now closed 7 acquisitions year-to-date, and we have several more opportunities under Letter of Intent. We remain on track to deploy approximately $250 million in accretive bolt-on M&A at attractive multiples this year.”
• “Over the course of the year from Q1 to the end of Q4, we expect M&A to contribute north of $200 million of revenue in the business.”

Pricing

• “So we continue to be able to capture low to mid-single-digit pricing in our inspection service and monitoring revenue streams. And your question then on margin and the impact of AI and digital on margins going forward. I would say our expectation on all of our revenue streams is that we’re going to continue to be able to expand margin into ’26, ’27 and ’28 as we pursue our 10/16/60 strategic goals and the technology and the use of technology will be a part of that.”
• “We don’t want to find ourselves in positions for, say, project-related work where let’s just say we’re not doing the inspection and service work for that customer. We don’t want to be in a position where we’re just competing on price. Like that’s just not our model. We don’t do well when we just compete on price. And if it’s just if that’s what it is, if somebody is going to treat it as an auction, if you will. We’re just we’re not going to do well in that environment. So it’s like why even waste your time pursuing it.”

AI

• “And when you think about the labor market that’s out there, we need to — our efforts around artificial intelligence and technology need to enable us to continue to scale our business because we’re going to have less people to be able to do the work. And so that’s really where the focus is. But we have a team that is focused basically on AI on an international basis. And the reality of it is just like most every other company, we’re probably in the bottom of the first inning in our efforts there. But we actually are resourcing and have kind of an AI task force for lack of better words.”
• “Meta or Microsoft or whoever, but when you’re doing the inspection and service work at those facilities and they come along and expand at that existing site, the opportunity for you to win that expansion, the business associated with that expansion rises dramatically because of the relationships you have and the client is interested in consistency and service and follow through and all of that other stuff.”
• “Data center, semiconductors, advanced manufacturing, all are really providing robust opportunities for us, and we’re just trying to make sure that we’re being smart so that we can get the gross margins on the work that we really need to get for that work to be beneficial to the company and ultimately to our shareholders.”

International

• “The international business delivered another solid quarter of organic growth, along with high single-digit order growth as that business continues to build momentum under APi’s ownership.”
• “Well, we’re like super fired up about the business and where that business is performing. It showed organic growth again in the quarter. I think that business has grown now organically every quarter since we’ve owned it.”
• “Not every one of our businesses internationally has progressed to the point where we feel like they’re ready for a bolt-on. But a number of them are. And we’re certainly doing work and looking at a number of opportunities, but we do have 1 small business under LOI in the international business.”

Specialty Segment Margins

• “When we think about our Specialty margins in the second quarter, they were down year-over-year, really driven by increased project starts. And at the front end of a project, that tends to be more material driven, which is lower margin. And as you work your way through a quarter, or a project, you typically start working your margin up… What I would say about margins though in the Specialty segment is we do expect them to improve sequentially as we work our way throughout the year.”

Guidance

• 2025
  • Full year net revenues of $7.65 billion to $7.85 billion, up from $7.4 billion to $7.6 billion, representing organic growth in net revenues of 4% to 7% for the year. Moving down the P&L, we expect increased full year adjusted EBITDA of $1.005 billion to $1.045 billion, up from $985 million to $1.035 billion, representing adjusted EBITDA growth of approximately 15% at the midpoint. Our increased full year revenue and EBITDA guidance is driven by updates to our business outlook, including the impact of closed M&A during the quarter, our second quarter over delivery and our latest outlook for the rest of the year. 
• 3Q
  • Reported net revenues of $1.985 billion to $2.035 billion. This guidance represents reported net revenue growth of approximately 9% to 11% and organic revenue growth of 5% to 7%
  •  Expect Q3 adjusted EBITDA of $270 million to $280 million, which represents adjusted EBITDA growth of approximately 9% to 13% on a fixed currency basis.
  • For 2025, we anticipate interest expense to be approximately $145 million, depreciation to be approximately $90 million, capital expenditures to be approximately $100 million and our adjusted effective tax rate to be approximately 23%. We expect our adjusted diluted weighted average share count for the year to be approximately 424 million.

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*At the time of this writing, one or more contributors to this report have a position in APG. Furthermore, accounts one or more contributors advise on may also have a position in APG. This may change without notice.