Panasonic to spin off its Security Systems business, sell majority stake to private equity firm
Panasonic, a company whose name is as synonymous with professional video surveillance products as it has been with consumer electronics, announced on Friday that it is spinning off its Security Systems Business Division and selling a majority stake in the new company to Polaris Capital Group, a Tokyo-based private equity firm.
According to a statement, the new company, which has been dubbed “Panasonic i-PRO Sensing Solutions Co., Ltd.,” will be comprised of the Security Systems Business Division as well as the industrial and medical vision compact camera R&D development of Panasonic’s Innovation Center. In addition, the company said that the public safety sales and development functions of Panasonic System Solutions Company of North America and its camera manufacturing facility in China – Panasonic System Networks Suzhou Co., Ltd. – will become subsidiaries of the new company.
The new company is expected to begin operations in October. Under the terms of the agreement reached with Polaris for “strategic co-investment,” Polaris will hold 80 percent of the new company’s shares while Panasonic will retain 20 percent.
“The new company will be able to utilize Polaris’ knowledge and experience cultivated from numerous investments into manufacturers and other large-scale enterprises,” read a statement issued by Panasonic. “It will build on the strengths of the Division while benefiting from management and resources of Polaris to seamlessly implement the necessary structure to operate as an independent organization. Strengthening its solutions capabilities with proactive alliances and M&As, the new company will aim to enhance its revenue and profitability globally centered on the North American market. With new and next-generation products and services, and a strategic growth plan to expand sales of medical camera modules, the new company will build a solid foundation as an independent entity with a potential public offering in the future.”
Following the completion of the spin-off, the new company’s cameras and software will continue to be sold under the Panasonic brand by the new company in the U.S. market, through Panasonic Systems Solutions Japan Co., Ltd. in its home market of Japan, and through existing Panasonic sales companies in other regions.
"Panasonic is confident this agreement will enable continued market growth, supporting the increase in demand and requirements for strong R&D for these businesses," Bill Brennan, Director of Sales and Marketing for Panasonic System Solutions Company of North America, wrote in a letter to the company's partners and customers."The combination of Panasonic’s 60-year history of providing a full portfolio of high quality security products and solutions and Polaris’ management and financial resources, will poise the company for accelerated growth through future product and solution development, strategic partnerships, and potential acquisitions. The current U.S. market presents an incredible opportunity for Panasonic Security, and this strategic direction will better position us to seize this opportunity together. As a valued partner and customer, you will experience little to no disruption, as we will fully maintain day to day operations."
Analysts Weigh In
While news of the spin-off may come as a surprise to some industry observers, Danielle VanZandt, Security Industry Analyst for market research firm Frost & Sullivan, says the move is simply a “sign of the times” for what at one time seemed like “untouchable” video surveillance manufacturers.
“Up until five years ago, surveillance companies were competing in terms of camera build, quantity of units sold, and overall image resolution. Once Chinese manufacturers like Dahua and Hikvision began to proliferate the global markets and win the sales battle through a low-price strategy, established and newer entrants to the market had to find newer ways to compete,” she says.
While some companies have successfully differentiated themselves in the marketplace by going beyond mere hardware innovations, VanZandt says those that have remained stagnant can expect to find themselves in an unenviable position moving forward.
“Companies such as Milestone, Genetec, and Axis Communications sought to move surveillance beyond just focusing on the camera itself, introducing and expanding product lines to include advanced video management systems and analytics capabilities, which has helped these companies to weather the digitalization shift in the industry. However, more established vendors seemed to stay confident in just their brand names and bulk sales, neglecting the digitalization trends and mainly focusing on just the camera. While this has still generated some sales, it is ultimately costing them market share, as customers are now wanting more digital surveillance solutions and turning to these newer, more digitized surveillance companies,” she adds. “Without the introduction of advanced VMS or data analytics for their surveillance product lines, we are only going to hear more about major sales or spin-offs from these established vendors and the ongoing success of newer vendors who have embraced the digital surveillance model."
Jim McHale, Managing Director of Memoori, a Stockholm-based firm that specializes in smart building research, says the fact that private equity firms have now acquired both Pelco and Panasonic – two of the video surveillance industry’s most iconic brands – suggests that no other manufacturer saw a benefit in making a strategic acquisition. However, according to McHale, the reasons why these companies failed to maintain their industry-leading positions are quite different.
“In the case of Pelco, they did not invest quickly enough in IP video technology. Schneider Electric acquired them in 2007 for a total price of $1.54 billion in cash, an exit sales multiple of three. Schneider Electric actually has a good record of acquiring building services companies and successfully integrating them into their building automation business, but it was not the same case with Pelco. Video surveillance is a more innovative and competitive business than building automation and they failed to catch up before the “race to the bottom’ hit them,” McHale explains. “Panasonic is still recognized as a respected brand but they have lost market share over the last four years. Their security business is a very small part of their overall $70 billion business and it would appear that they have lost interest in video surveillance, with its tight margins and fierce competition from China, it obviously no longer interests them.”
About the Author:
Joel Griffin is the Editor of SecurityInfoWatch.com and a veteran security journalist. You can reach him at [email protected].
