Security industry to weather economic storm

The Physical Security industry has performed well for the first six months of this year and we are bullish about the prospects of continued growth for the full year.

However, a financial cloud is gathering which is affecting confidence for world economic trading conditions. Debt problems in Europe look to be more serious than first thought six months ago, and now the impending cap on the U.S. federal budget deficit will probably constrain world growth prospects in 2012.

These factors will affect buyer’s budgets in Europe and North America, but it is anticipated that they will have less impact in Brazil, Russia, India and China where growth in demand for security products is currently much higher.

There is only one solution to reducing the impact of these events or even nullify them and that is to continue with the innovation program of delivering more effective security systems at lower prices.

This is the reason for the security industry coming out of the recession in 2009 in much better shape than most other industries. It has consistently delivered more for less and more importantly, provided much higher rates of return on security investments.

Now has to be the time to dig even deeper and increase all efforts in developing wireless technology, IP networking cameras, HDcctv, managed video- as-a-service, analytics and convergence with the business enterprise.
This may be best achieved through merger, acquisition and alliance. These activities have in both volume and value terms increased significantly in the first half of this year and this has continued into July.

In January, we forecast that 2011 would be a bumper year for acquisition and merger activity and in the first six months of this year, the industry is well on track to achieve this.

We identified 45 deals having a value of $6.506 billion, and for the same period in 2010, we noted 43 deals having a value of $2.9 billion.

We recorded six acquisitions in July compared with only one in the same period of 2010. The most significant of these transactions was Xtralis’s acquisition of Germany's HeiTel Digital Video, bringing Xtralis into the remote video market; Identive Group’s acquisition of Polyright SA, a provider of identity management solutions for the education and healthcare markets based in Sion, Switzerland; and Verint System’s acquisition of Vovici, an industry leader in enterprise feedback management (EFM) solutions. All of these were strategic buys and were paid for in cash.

Investment in the industry was particularly buoyant in July. Devcon Security, a super-regional alarm company that has rapidly expanded into a national U.S. player in the past year, announced a new $215 million credit facility that includes $110 million in new financing. Vector announced on July 28, the completion of a new $225 million credit facility that includes $75 million in new financing and the GEO Group announced that its board of directors has approved a stock repurchase program of up to $100 million of GEO's common stock.

The most encouraging feature of the business is reflected in the financial performance of security players. The fourth quarter of 2010 and the first quarter of 2011 financial announcements showed, for the most part, revenues and profitability well up on the same quarter of 2010 and this has continued with the second quarter announcements that have just been released.

The traditional players active in most segments of the market such as Ingersoll Rand, Johnson Controls, UTC, Nice and Honeywell have announced growth in revenues and profitability in the second quarter as have the specialist smaller niche players such as Vivotek, VideoIQ, 3VR and Mobotix.

One thing is for sure, the security industry is going to ride out this anticipated financial turbulence because it is in a healthy state and has confidence that it has been through worse before.