Private equity has played a much more passive role in recent years. It has suffered as a result of the financial meltdown and has not been able to recycle through the natural process of initial public offerings (IPO). It is going through a process of restructuring and is redefining investment parameters. So, public equity will continue to dominate the M&A scene for the next two years. However, private equity has in the past been a major source of funding for acquisitions, and the pundits tell us that private equity buyouts are bouncing back. In 2011, IPO activity is likely to be concentrated in China, primarily to float the fast growing local manufacturers, but we may see more “Western” companies follow the example of Infinova's listing on the Chinese Stock Exchange.
Security in 2010 saw a rebound in activity. Allan McHale, Director of Memoori, delves into key M&A trends and considers what could happen in 2011. This is Part 2 of a two-part series.
Strategic Drivers
In the last two years, M&A activity has been driven by strategic buys, particularly by the major global security companies, defense companies and from outside the security business — IT and communication companies and more recently validation, authentication and biometric companies. This dynamic seems to continue to apply in 2011 and beyond.
Private equity has played a much more passive role in recent years. It has suffered as a result of the financial meltdown and has not been able to recycle through the natural process of initial public offerings (IPO). It is going through a process of restructuring and is redefining investment parameters. So, public equity will continue to dominate the M&A scene for the next two years. However, private equity has in the past been a major source of funding for acquisitions, and the pundits tell us that private equity buyouts are bouncing back. In 2011, IPO activity is likely to be concentrated in China, primarily to float the fast growing local manufacturers, but we may see more “Western” companies follow the example of Infinova's listing on the Chinese Stock Exchange.
Defense, multinational security and IT-related companies will engage in more transformational transactions. In the last two years, such deals included Safaran's purchase of GE Homeland Protection, Schneider Electric's acquisition of Pelco and UTC's buy of GE Fire and Security. In 2010, Safran continued this strategy with the purchase of L1-Identity Solutions. Flir Systems, Hexagon, 3M and Hewlett-Packard have joined in, with respective acquisitions of ICx Technologies, Intergraph, Attenti and Cogent Systems, and Arcsight. We expect more of the same in 2011.
The defense industry has, over the last three to four years, entered the commercial security business through the combination of marketing their existing technology and also making some strategic acquisitions. Federal Signal, General Dynamics, Mantech International and BAE Systems all acquired suppliers in the security industry in 2010. We expect this process to continue in 2011, blurring the lines between the commercial security and defense sectors.