Back in February, industry M&A analyst Robert Perry wrote on SecurityInfoWatch.com that “2015 will go down as the year of the ‘mega-deal’ in the manned guarding and the electronic security industries.” It was truly a remarkable year: Canon bought Axis; Kaba and Dorma merged; FLIR bought DVTel; Securitas grabbed Diebold; and Apollo Global Management bought Protection 1 and ASG Security and merged them. The industry was anxious to see what would happen next.
Fast-forward to nearly a year later, and the mergers and acquisitions of 2016 absolutely and unequivocally dwarfed those of 2015. If 2015 was the year of the mega-deal, then we are calling 2016 “the year of the giga-deal” (trademark pending).
2016 started with a bang when two of the very largest global systems integration providers, Johnson Controls and Tyco, merged into one, creating an integration company which would have a global market share greater than 5 percent – worth approximately $62 billion – in an extremely fragmented environment.
2016 saw two of the very largest manned security service providers – AlliedBarton and Universal Services of America – merge into one, creating the largest security company in North America and a one-stop shop for security-related services, from guards to technologies.
2016 saw the largest pure-play home security provider, ADT, merged with the Apollo-powered behemoth already created in 2015 by the Protection 1/ASG merger. The combined company is expected to generate more than $300 million in RMR alone, with annual revenues in excess of $4 billion. The Wall Street Journal called it “one of the biggest leveraged buyouts in recent years.”
“Each year we wonder what M&A will impact our market,” Hanwha Techwin’s Tom Cook says. “History tells us that each year there will be major and minor M&As with manufacturing and integration companies – and although there is a shift in the business (landscape), the industry as a whole seems to adjust quickly.”
The Big Target: Service Providers
In 2015, the landscape of the security technology provider industry took on a new look; in 2016, on the other hand, the security services industry was forever altered. “I expect that we will see continued consolidation as the integration market continues to mature,” IHS Research analyst Paul Bremner said upon news of the Johnson Controls-Tyco deal. “It is likely that the large international players will look to smaller regional companies as acquisition targets, as these smaller regional companies have been experiencing higher growth rates over the past 2-3 years.”
Indeed, the three biggest giga-deals mentioned all impacted the security service provider industries – security integrators, manned guard service providers and residential alarm dealers; however, there was much more activity in 2016 than just the big three.
In the security monitoring space, Lydia Security Monitoring, the parent company of COPS Monitoring, acquired United Central Control.
Established integrators – whether directly in response to Johnson Controls or not – responded with their own deals. Convergint Technologies led the way, adding seven integration companies from around the globe to its mix. “We had a pretty successful year in 2016 relative to acquisitions and I think we are going to see the same pace in 2017,” says Convergint Executive Chairman Dan Moceri.
“There are a lot of quality companies out there either looking for a longer-term exit or realizing that to stay competitive in the marketplace, they need to have a broader solution set or be able to service their customers on a broader geographic reach,” Moceri continues. “We can bring that to those companies, and as a result, our funnel of potential acquisitions in 2017 is just as strong as what we saw in 2016.”
Super-regional security/alarm dealers like ADS Security gobbled up companies in 2016 to dominate the small business and residential dealer space. By our count of just the deals that were publicized via SecurityInfoWatch.com in 2016, more than 30 security dealers/integrators were merged or acquired last year – and there are vast numbers of deals that are not made public. The largest outside of ADT was arguably the Jan. 2016 merger of SafeStreetsUSA, Gaylord Security and ASC Security to create the single largest ADT dealer in the world.
“I don’t see the industry consolidation trend slowing in 2017,” Electronic Security Association (ESA) President Angela White says. “The market continues to be attractive to outside investors, there is a tremendous amount of capital available for businesses in acquisition mode, and there are a lot of business owners that are ready to cash in on their hard work and retire.”
“Private equity funding has further supported consolidation efforts,” adds Honeywell’s Inder Reddy. “Since inorganic growth is an important part of RMR growth, we expect dealers to continue to seek attractive additions to their portfolio as long as valuations support the deals.”
Technology Markets
Video surveillance: The shockwaves from 2014-2015’s flurry of activity in the video space – Canon acquiring Axis and Milestone, along with fast-paced acquisitions from companies like FLIR, Panasonic and Phybridge – seemed to create a bit of a lull in 2016 activity. Thanks to these mergers, the supply base for video surveillance equipment has become more consolidated. According to IHS, the 15 largest video surveillance vendors accounted for 55 percent of global revenues in 2015 – up by 11 percent.
“Although lots of software vendors have been acquired in recent times, most of the consolidation has been down to organic growth rather than M&A activity,” explains IHS video market analyst Jon Cropley.
That said, there were still a number of significant transactions and news in the surveillance industry in 2016, as companies attempted to become better-rounded from an offerings standpoint. Axis bolstered itself by acquiring a video analytics specialist and an intercom provider; Hikvision acquired an intrusion alarm provider; FLIR continued its flurry of acquisitions, led by its purchase of ISD; and Konica Minolta muscled into the space by acquiring Mobotix.
“M&As set the quickest path for organizations to offer end-to-end solutions – as it allows immediate technology enhancements, matured products and established market share to compete with more complete offerings,” FLIR’s Ron Grinfeld says.
Perhaps more interesting and newsworthy were three non-M&A video surveillance news items: Hanwha Techwin’s decision to drop the Samsung brand; Axis’ takeover of sales and support of the entire Canon surveillance product line; and most recently, Bosch’s announcement that it will be taking over the sales and marketing of Sony-branded products in every market with the exception of Japan.
Access Control: ASSA ABLOY continued its storied tradition of adding new product lines to its portfolio, including its most recent, BluVision, to help gain a better foothold in the Bluetooth Low Energy (BLE) space. Major M&A saw Vanderbilt acquire Access Control Technology Ltd., while Vanderbilt’s parent company, ACRE, added ComNet to the mix.
Perhaps the most significant transaction came as 2016 closed, as the snowball rolling downhill created by the Dorma-Kaba merger continued its momentum by adding the Best Access Systems, phi Precision and GMT businesses from Stanley Black & Decker.
“Today’s organizations that engage in M&A activity are doing so in an effort to build a comprehensive product portfolio that is better able to serve the wide variety of customers in today’s marketplace,” Vanderbilt President Mitchell Kane explains.
IHS analyst Blake Kozak says an increase in consolidation in access control is inevitable due to market evolution. “Through M&A, companies can quickly gain intellectual property (IP) and expertise in new areas as well as supplement supply chains and regional sales channels,” he says.
As M&A activity continues, manufacturers must work harder at differentiating themselves. According to AMAG Technology’s Kurt Takahashi, this will take the form of professional services, technical support and customer services. “They will need to deliver solutions beyond access control to have an impact on the market and set themselves apart,” he says.
Looking Ahead
If 2016 proved anything, it is that predicting what exactly will happen year-to-year on the M&A front is next to impossible. That said, because of the extended fragmentation of the security market – whether you are measuring by technology sector or by service providers – there seems to be several areas ripe for further consolidation.
One market that should be interesting to watch in 2017 is residential security and smart homes. “Continued consolidation into 2017 could be healthy for the security industry and its impact on the smart home market,” points out Robert Beliles of Nortek Security & Control, whose parent company, Nortek, was acquired in July 2016 by Melrose Industries. “According to generalized stages of consolidation, large mergers would indicate that the security industry is located somewhere on the spectrum between the scale and focus stage. If that is true for where the security industry is moving into 2017, it might be an indication that there could be additional mergers on the horizon.”
IHS believes consolidation in residential security will continue into 2017 as a means to compete with telecoms. “The mergers will begin to incorporate a technology element to expand smart home capabilities,” Kozak says. “As cable companies continue to develop security offerings, traditional residential security providers cannot remain idle, nor can they rely on the old adage that cable companies have terrible customer service or that consumers don’t trust cable companies to host security services. Mergers will need to address this growing threat.”
With a new landscape of security vendors and service providers – one surely to change again in 2017 – it begs the question, is this a good development or a bad one? While industry consolidation is a double-edged sword, it might make sense to look at it with pragmatism instead of fear. “To some extent, it could be a threat for end-customers, as they will have fewer choices,” says Fredrik Nilsson of Axis Communications. “However, as the market has been overly fragmented, it should be better with some level of consolidation.”
Timeline: Major Mergers/Acquisitions of 2016
JANUARY
19- American Direct acquires Quintron
25- Johnson Controls merges with Tyco
27- COPS Monitoring parent company Lydia Security Monitoring acquires United Central Control (UCC)
27- Pivot3 acquires NextGen Storage
27- SafeStreetsUSA, Gaylord Security and ASC Security merge, creating largest ADT dealer
FEBRUARY
4- Honeywell acquires Xtralis
16- Apollo Acquires ADT; merges it with Protection 1
MARCH
1- Honeywell acquires RSI Video Technologies (Videofied)
2- CCL Industries acquires Checkpoint Systems
29- Konica Minolta acquires Mobotix
MAY
3- AlliedBarton merges with Universal Services of America to create Allied Universal
3- Convergint acquires Total Recall
16- Tyco Security Products acquires Innometriks
20- Hikvision acquires Pyronix
31- Axis acquires 2N
JUNE
6- Axis acquires Cognimatics
9- FLIR acquires Innovative Security Designs
23- Comcast, Alarm.com separately acquire business units of Icontrol Networks
21- OSI Systems acquires American Science & Engineering (AS&E)
JULY
6- Melrose Industries buys Nortek
AUGUST
10- JValley Software acquires LENSEC
31- Vanderbilt Industries acquires Access Control Technology Ltd.
SEPTEMBER
19- Allied Universal acquires Apollo International
OCTOBER
27- Qualcomm buys NXP Semiconductor
NOVEMBER
8- Dormakaba acquires Mesker Openings
15- Bosch and Sony to combine video surveillance business units
DECEMBER
8- Gemalto acquires 3M’s biometric and identity management business
13- ACRE (parent of Vanderbilt and Mercury Security) acquires ComNet
21- Dormakaba acquires Best Access Systems, phi Precision and GMT businesses from Stanley Black & Decker
Paul Rothman is editor-in-chief of Security Dealer & Integrator (SD&I) magazine. Access the current issue, full archives and subscribe at www.secdealer.com. Joel Griffin is the editor of SecurityInfoWatch.com.
