A survey of the 2010 security industry

Industry grew its business through alliances and acquisitions

[Editor's note: This is part 1 of a 2 part synopsis of Memoori's study "Survey of the Security Business 2010". This is the firm's second annual review of the world's business for physical security equipment.

The objective of the review is to bring together valuable statistics about the business size, shape and structure across three main segments: Access Control, CCTV/Video Surveillance and Intruder/Intrusion Alarms. The goal is to then analyze the business opportunities that have taken place in mergers and acquisitions, alliances and investments across the world in 2010. It also reviews those technological and commercial trends that are shaping the future of the business and impact on where investment is most likely to be targeted in 2011 and beyond.]

Part 1 - Developing the Business through Acquisition & Alliance
2010 has been a monumental year for the security industry. Despite a weak economy, the market has grown and confidence in its future has returned. Once more the market is attracting private equity investment as well as delivering explosive growth through mergers and acquisitions as well as from alliances between suppliers.

Market Size, Share & Distribution
We estimate that the world market for electronic based physical security equipment at factory gate prices in 2010 was USD $18.67 billion; a growth of 4 or 5% over 2009 but still marginally below its peak in 2008. Of this, video surveillance took the largest share at 47.5% (increasing its share by 4.5%), at the expense of intruder alarms 29.5%; with access control at 23%.

So despite overall growth in the business, intruder alarms sales have declined and access control sales have lifted marginally, while video surveillance has performed well, particularly considering the poor economic trading conditions that have prevailed over the last three years.

This is a robust market which has outperformed many of the general electronic equipment businesses supplying the industrial and commercial markets. For this reason acquisitions and investment have surged ahead in 2010 and are forecast to continue over the next two years.

Fig 2.2 shows the geographic distribution of equipment sales in 2010 and this has changed significantly in the last three years. China has more than doubled its market share in the last five years to 11%, whilst other emerging markets in Asia, Central and Eastern Europe and South America have similarly increased their share of the market. This trend will continue with China probably becoming the biggest single market by the end of this decade.

Merger & Acquisition in 2010 and Forecast to 2015
Fig 4.1 shows security deals completed from 2000 to 2010. The value of deals completed in 2010 was USD $7.98 billion; a growth of almost 75% over 2009. This is the highest value ever recorded and is 28% higher than the previous record set in 2005 and 2007. This is a startling number not least because it is in stark contrast to what has happened in similar technology/electronics businesses. So what has caused such a surge in consolidation, at a time when the global market for physical security equipment has experienced little growth?

In 2009 we identified 77 acquisitions compared with 80 in 2010, so the almost doubling in the value of deals is clearly not the result of more transactions. The reason is that this year, consolidation has been much more focused at the top end of the business, between established large companies. The buying price for just three deals amounted to $4.3 billion, some 54% of the total business transacted, and a further seven companies paid over $250 million to complete deals.

The drivers to achieve growth in this industry are clearly to deliver products and services that increase productivity and provide a return on investment. IT convergence and integrated solutions are seen as the way forward here. In order for companies to deliver such systems, many have decided that it is necessary to acquire expertise through merger and acquisition.

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