According to David Harding, who leads corporate mergers and acquisitions for Bain & Co., a global management consulting firm, the mergers and acquisitions industry is highly cyclical. He says it’s a “little bit like sunspots.”
There were more than $3 trillion in transactions reached around the globe in 2014 – the most prolific year for M&As since the world financial crisis begin in 2007-08. Harding expects to see the M&A train gain more steam this year across all types of industries.
In fact, the security industry has already seen a flurry of M&A activity over the last 24 months, harkening back to the golden age of company swaps that began almost 20 years ago. In the late 1980s and into the early 90s, security was still a commodities-based industry comprised of hardware manufactured by small to mid-sized domestic engineering companies. There was an engineer’s naivety that drove product development that often left end users at the mercy of the vendor.
Yet, it was this entrepreneurial spirit of early security pioneers like Rusco, Sensor Engineering, HID, Burle, Sensormatic Electronics, Hirsch and Software House, among others, that set the foundation for today’s market and established the value proposition Fortune 500 companies eventually bought into. Suddenly security had evolved from a cottage industry to a portfolio essential for corporate giants like Tyco, Honeywell, GE, Assa Abloy, and United Technologies.
While almost every major acquisition has endured some painful transitions, there is no doubting that the influx of corporate funding spurred advancements across the security technology spectrum. I recently asked longtime industry business guru Jeff Kessler, currently the Managing Director for Institutional Research at Imperial Capital, what he would rate as his most impactful security M&As involving security technology companies over the past two decades -- hoping to get a sense of where we are headed. Here is his assessment:
- The acquisition of Ademco from Pittway to Honeywell in 2000. The largest manufacturer (and distributor) of security products, has to be regarded as a significant transaction.
- The acquisition of HID (formerly Hughes ID) from Palomar Technological Cos. and Citicorp Venture Capital to Assa Abloy in 2000. With this acquisition, Assa Abloy was able to jump ahead of the world in identity solutions, even though the initial integration pace was slow.
- The many, many consolidations of biometric and ID companies, including Identiix, Digital Biometrics, Visionics, Iridian, and Viisage in the 2000’s, ultimately into L-1 ID Solutions, which was in turn acquired I 2011 by Morpho Trust, a U.S. division, of France’s Safran Group. Morpho Trust is everywhere in ID and biometrics today.
- A Surprise!!! The acquisition of Indigo Systems (infrared sensors) by FLIR in 2003, was the beginning of a long-term major downsizing in form factors and pricing in the infrared business which is just now having major impacts on the use of thermal and infrared in just about everything visual, including visible light cameras using infrared sensors as an “alert” mechanism.
Perhaps the most dramatic paradigm shift in the security landscape today includes the growing strategic partnerships of like technology vendors. The recent acquisition of Milestone and Axis Communications by Canon, in late 2014 and early 2015 are prime examples. “This has proved out our five year thesis on the vertical structure collapse of the video industry where (mainly) standalone software management and camera manufacturers – no matter how well regarded and no matter their technological leadership – are increasingly seen as parts of a much larger value proposition in video at the enterprise, institutional, and critical infrastructure level,” says Kessler.
As we move further into the 21st century and network-centric influences continue to reshape how we view security, will we lose the entrepreneurial foundations that built the physical security industry? Kessler doesn’t think so.
“I do not believe the entrepreneurial spirit is being lost. For every John Moss, or Russian couple that founded an access control company, there are brilliant small companies that push the envelope every year in security technology. It is just that the needs of the larger companies to provide a greater value proposition has forced them to face the ‘buy versus build’ question earlier in their own cycles than previously, resulting in acquisitions of smaller companies with perceived-to-be leading edge technologies earlier in their lives,” Kessler confides. “I know of many, wonderful small companies – yet not too small – that have been nurtured by private, and in fewer cases, venture capital – that will be changing our lives in security.”
