IHS: Consolidation not on the immediate horizon for security industry

Oct. 3, 2013
Global market for physical security equipment and services to reach $170B by 2017

A new report from IHS Inc. says that the security industry will not be marked by consolidation in the near future, but rather competition. The research firm said that the global market for physical security equipment and services was worth $110 billion 2012 and is expected to grow to $170 billion by 2017.

According to the “Total Physical Security Equipment and Services – 2013” report, the Americas made up 41 percent of the worldwide market in 2012, generating $46 billion in revenue, followed by Asia with $33 billion and the Europe-Middle East-Africa (EMEA) region with $29 billion.  Each of these markets is expected to see strong growth over the next few years.

“At its current level, the industry’s annual revenue is double the budget of the U.S. Department of Homeland Security, and is also on a par with the global revenue of giant corporations such as Nissan Motor Co. of Japan, the U.K.’s Tesco or IBM from the United States,” IHS said in a statement.

Despite predictions that the industry will see increased consolidation in the future, especially within video surveillance, IHS says that it is “not convinced” that will happen due to the current high level of competition and fragmentation within the market.

For example, IHS says that only two companies broke the $2 billion level in annual revenue, with both accounting for a combined market share of 10 percent. In addition, the research firm said that only five other companies possess a market share of one percent or higher.  In fact, the top 15 together only managed a market share of just above 20 percent, with the remainder of the market (more than 78 percent) up for grabs among thousands of other companies.

 In all, about 40 players in the space achieved revenue in excess of $100 million a year in 2012.

“It’s extremely competitive in every vertical, product and region,” said David Green, senior analyst for video surveillance and security services at IHS. “You have several companies that are offering virtually the same product in specification and price, yet the highly personal nature of security sales means that each company can claim its own little niche within the market.”

However, IHS said that there will be some M&A activity within the security market, but that it won’t have the same impact as it would in other industries.  “True, mergers and acquisitions in the physical security market are inevitable and will happen, especially on the product side of things, but not with the impact you might see in other markets,” said Green.

For a company to obtain a significant jump in market share, IHS said it would “realistically” need the combined share of five or more existing manufacturers.  “That’s just not going to happen overnight — this is not an industry where one acquisition propels you straight to the top,” Green explained.

While there may yet be increased consolidation in the long-term, IHS says it will be a much slower process than traditional market economy studies predict. “Yes, it defies accepted market logic to some extent,” Green concluded. “But then at $110 billion and beating the recession, it’s hardly a typical industry anyway.”

For more information about the report, visit www.ihs.com.