There are two major forces reshaping the security and safety industry. The first is a rapid consolidation process that is inevitable but is particularly powerful when any business is young, immature and growing fast. The second is a heady cocktail of converging technologies from the fast-growing Web services, IT and digital electronic industries that have only been introduced to our industry in recent times.
In recent years, new alliances and partnerships are taking place in the security industry. To leverage R&D cost, there is a need to rapidly scale up and establish a global presence. This can be best achieved through the acquisition of companies that have either the technology, financial resources and/or the distribution networks in place.
The monthly report, "Executive Brief — Mergers and Acquisitions in the Security and Safety Industry," details acquisition activity across the globe, benchmarks the consolidation process and performance, and identifies target companies for acquisition based on the future direction of technology and buyer requirements in particular vertical markets.
Both Schneider Electric and UTC commenced business in the security and safety industry in 2003 through the acquisition of major players. Since then, they have both pursued a policy of buying companies with a very significant share of the business and geographic spread. They have both made a heavy investment in a series of acquisitions in this business and are among the top 10 world suppliers in 2008.
Stanley Works is another company that has spent heavily in the electronics security market since 2003, making its first change in future direction from mechanical to electronic systems with the purchase of Blick. Since then, it has built up a countrywide network in the United States.
Siemens and Bosch, both well-established leaders in this market, have not pursued an aggressive acquisition policy, favoring a more selective acquisition of strengthening technology and geographical gaps in their portfolios.
Tyco and GE Security have, in the last few years, slowed down their policy of acquisition, but the former made a couple of acquisitions in the retail sector in recent months, further establishing its worldwide dominance in this vertical.
One of the most powerful indicators shown through the analysis in the monthly report is the correlation between value benchmarks and the capability and adoption of leading-edge technology of the target company. Relatively small companies in IP video, analytical software and communications exist at ratios of three times annual sales, and those with biometric technology can exceed this.
Some argue that the buyer is paying too much, but a quick check on L-1 Identity Solutions, who has acquired around 10 companies in recent years, shows that it is a very profitable operation working on high margins.
Acquisition activity is taking place right across all applications; video surveillance is making the largest number of deals followed by access control and then intrusion alarms. Major players in the business have strong balance sheets and no restrictions on financing suitable acquisitions, but medium and small companies will find it more difficult to finance — and this will also apply to management buyouts.