Could the security and video surveillance market be on the verge of a period of industry consolidation to rival the mergers and acquisition (M&A) frenzy of the 1980s? The thought is not as outlandish as it seems.
Consider that the security market continues to be extremely fragmented while other markets — for example, the wireless communications market — have consolidated. How long can security defy the trends that are so obvious in comparable technology markets? Are we really that different, or have previous attempts at consolidation just been badly managed or ill-timed?
The economy is improving, and there are a lot of companies in the security industry that have been hurt by this latest drawn-out recession. It is conceivable that some of these companies may be good targets for merger or acquisition, given the need to shore up their finances to compete effectively going forward. Survival is a strong motivator and often a necessary business strategy. There are plenty of successful startups whose founders have taken them as far as they can without an influx of cash. There are companies whose cost structure can benefit from the economies of scale a larger owner can provide.
There are also several bigger players — whose growth has been slow lately — looking to expand and find new product categories or technologies to jumpstart the tepid optimism of a weak recovery. They want an aggressive, long-term route to faster growth and greater profitability. They see gems of technology innovation ready to be mined. The convergence of multiple technologies around IP networking introduces new synergies in previously unrelated product categories. We keep hearing that big companies have a lot of cash reserves — might they spend them on acquisitions? Quite possibly.
Not since the 1980s, when leveraged buyouts fueled an unprecedented M&A period, has the climate seemed so ripe for consolidation. There is an abundance of worthy candidates to be acquired and good, solid companies well positioned to buy them.
The Benefits of Consolidation
Innovation can only take companies so far — then they can benefit from an influx of cash, access to a larger infrastructure and maybe even new management. To be successful, more companies will seek to be larger, capitalized and committed. Truly successful long-term players are created at the intersection of technology innovation and business viability. New resources can take moderately successful companies to the next level.
Ideally, an acquisition seeks to preserve what made the acquired company successful to begin with while adding new resources, more stability and the luxury of taking a long-term view rather than struggling with immediate financial concerns.
Unfortunately, we have often seen it done wrong in the security and video surveillance industry. Several big companies have entered our market with the goal of buying up multiple players to create a single, very large footprint. Some have been unsuccessful — at least so far. Too often, the acquiring company has imposed arbitrary corporate requirements or tried to fit the acquired company into a preconceived template. Badly needed resources are denied because of corporate austerity or a short-term emphasis on earnings to support a stock price. We have seen many successful, entrepreneurial companies wilt within the oppressive corporate climate.
It doesn’t have to be that way. M&As should result in better companies that take advantage of revenue and cost synergies to make the whole greater than the sum of the parts. Maybe the next wave of M&A will get it right. Maybe the new, larger players will preserve and maintain the positive aspects of the acquired companies while providing stability and a long-term financial strategy for growth.
A New Landscape
If a new period of M&As is realized, the security and surveillance industry will look very different in the near future. There will be fewer, larger players who are willing to make financial commitments to the industry to win market share by providing more and better products and services to their customers.