Nearly seven months to the day since acquiring VMS powerhouse Milestone Systems, Canon Inc., intends to massively bolster its video surveillance offering again with a stock offer on Tuesday to acquire Axis Communications for approximately $2.83 billion.
According to an official statement, the Board of Directors of Axis has concluded to unanimously recommend that the shareholders of Axis accept Canon’s public offer. Like Milestone, it appears that Axis will remain a standalone brand. “Following completion of the Offer, Axis’ current management team will remain in place and Axis’ headquarters, development centers and sales offices will stay where they are today,” both Axis and Canon’s statements read. “The strong Axis brand name will be maintained and applied in all relevant markets. Furthermore, Axis will continue to remain as a separate legal entity within the Canon Group. Axis will operationally and financially report to Canon’s CEO.”
The combined Canon company would be the largest video surveillance company (by market share) in the Americas and the third-largest from a global perspective, behind Hikvision and Dahua — two brands supported by tremendous sales in Asia — according to research firm IHS. Furthermore, IHS estimates that Axis was the third-largest supplier of video surveillance equipment in 2014 with over 5 percent of a global market worth around $15 billion.
“This is a massive development in the video surveillance equipment market,” reports IHS analyst Jon Cropley. “Until last year, Canon was a small player in this market; however, back in August 2013, it revealed big ambitions when its CEO, Fujio Mitari, spoke about security cameras becoming an ‘important pillar’ for the company and the market having ‘limitless possibilities for growth.’ Now, Canon is purchasing the world’s largest supplier of network cameras. All of this shows just how seriously Canon is about expanding its interests in the video surveillance equipment market.”
Back when Canon acquired Milestone, Rokus van Iperen, President & CEO of Canon Europe, Middle East and Africa said: "Canon is aiming to take a leadership position in network video surveillance and we are making an important strategic investment to realize our objective to expand in this market."
In its statement Tuesday, Canon added: “In recent years, the video surveillance system market has continued to realize rapid growth. Canon views its network surveillance camera business as a promising new business area and positions the business as a driving force for future growth within the Canon Group.”
The acceptance period of the Canon offer is expected to commence on March 3 and is expected to expire on April 1.
Inside the Combined Company
According to a statement released Tuesday, after the completion of the offer, Canon envisions the following synergies:
1. Strong technology synergies: The combination of Canon’s optical and imaging technologies and Axis’s network image processing technology will enable both companies to offer innovative, sophisticated network video solutions. Furthermore, by making use of Canon’s wide range of research and development capabilities and manufacturing technologies, Axis will be able to boost product competitiveness.
2. Strengthening the intellectual property portfolio: Canon and Axis each own intellectual property in different technology fields. Together, the combined intellectual property portfolio will be strengthened across a broad area of technologies, allowing leveraged product development which will contribute to an increased ability to introduce new and innovative products, solutions and services to the market.
3. Enhancing the distribution and service network: To date, Canon has created a global distribution and service network for its camera products and business equipment. Additionally, Axis has a well-established worldwide network of 75,000 business partners, including system integrators. With Axis joining the Canon Group, Canon will be able to add Axis’s distribution and service channels for network system products.
Obviously, Canon’s executives see a huge growth potential in the network video surveillance market, as indicated by its earlier statements in 2013 and following the Milestone acquisition. With Axis, Canon acquires one of the most recognized and respected names in the industry – and one of the faster-growing brands.
“The underlying market for the company’s current core offering, network video products, is continuously increasing in a rate which external market research institutions estimate to 16 and 22 percent, respectively,” Axis said in its statement. “The company’s position in the field of surveillance cameras is excellent and there are several geographical areas and adjacent product lines with significant growth potential, benefitting from the strong global brand name. As communicated by Axis in (its) year-end report for 2014, the company is continuing to release new products at a fast pace, which also includes software solutions. Axis is in a unique position to continue the global expansion and strengthen its position on the market of network-based surveillance solutions as well as other parts of the security market.”
Axis added that its long-term financial goals are an average annual growth of at least 20 percent and a profit margin of at least 10 percent.
Market Consolidation
Canon’s activity, along with other significant developments in the video surveillance market in the past few years indicate an industry inching closer to consolidation.
“I think for some time that there’s been a general recognition that the supply chain for video surveillance has been too fragmented and that consolidation had to come at some point,” Cropley said. “The question has always been when. Last year when Canon acquired Milestone we were asking, could this be the beginning?
“More recently, this acquisition and Samsung Group’s withdrawl from the market (with the sale of Samsung Techwin) perhaps does indicate there’s more ahead,” Cropley continued. “We think that 2015 could be a big year for acquisitions in the video surveillance market.”
Editor’s Note: Click here to read more about the IHS Research analysis of this big news.
Paul Rothman is Editor-in-Chief of Security Dealer & Integrator (SD&I) magazine (www.secdealer.com).
