The total value of world production of physical security products at factory gate prices in 2018 was approximately $31.55 billion, and the market is forecast to reach $44.25 billion in 2023, growing at a compound annual growth rate (CAGR) of 7.2 percent over the next five years.
We estimate that China accounts for approximately 31 percent of the world’s physical security business. It is now the biggest single country market for physical security products having increased its share by almost 50 percent in the last seven years. Video surveillance equipment has been the major contributor here, with the market growing rapidly through a boom in new construction and safe city projects in the public sector.
However, very little of this vast expanding market has been of benefit to Western manufacturers as they have failed to establish a solid business base and significant market share in China. Two Chinese manufacturers, Hikvision and Dahua, now have sales of more than $5 billion between them and the kind of scale that allows them to reduce prices to levels most Western manufacturers can’t compete against.
Top Companies Increase Market Share
There are now 14 companies, with physical security product revenue over $1 billion (which we term Group A Companies) accounting for some $18 billion in 2018. Hikvision, Dahua and Axis Communications have given new impetus to this group and the merger between Thales and Gemalto has produced a new mega identity management/biometrics company. The net effect is that this group has significantly increased its contribution and the average sales revenue is over $1.2 billion, giving them 57 percent share of the physical security product market.
Access control is still a much smaller business than video surveillance and is less competitive, but consolidation is creating a more competitive environment and with it comes the confidence to move forward and take up the challenge of embracing new technologies that will deliver better performing products. However, if manufactures prefer to continue to be insular and proprietary, it will not be good news for continued growth as traditional proprietary systems mean limited options for the customer and restricted possibilities for integration and scalability.
Cybersecurity Now Taken Seriously
2018 is the year that all the stakeholders in the physical security industry finally got the message that the cybersecurity threat was capable of causing significant harm to their businesses. Now, one of the critical buying propositions of physical security is: “What have you done to make this equipment less vulnerable to cyber attack?” The owners and operators of buildings, particularly those having large building estates, need to know that manufacturers and installers fully understand what needs to be done to reduce vulnerability and make sure it is applied to their equipment and systems.
M&A on the Rise
The report also shows that in 2018, mergers and acquisition activity in physical security totalled $7.33 billion (up 16 percent over 2017), which looks like the start of a new wave of growth. The structure of the industry is still very fragmented with hundreds of small companies finding it increasingly difficult to compete. It looks inevitable that the general trend line of value and volume of M&A will continue upwards over the next five years, but at a modest growth rate. The average value of a deal increased from $100 million in 2010 to $150 million in 2015. This year (2018), adjusting for the non-physical security business of the Gemalto acquisition, the average deal was around $160 million.
The number of deals in the range of $50 million to $150 million has increased and there has been more diversity across the different product types. Cross border acquisition accounted for 24 percent of the deals carried out this year. For the most part, over the past five-year period, the main driver has been the need to extend geographic coverage, but this year acquisition of technology has been the main objective. Some 62 percent of the deals involved the acquisition of U.S. companies with the vast majority being domestic affairs.
About the Report
At 329 pages with 43 charts & tables, “The Physical Security Business 2018 to 2023; Access Control, Intruder Alarm & Video Surveillance” report filters out all the important conclusions, supported by facts, to demonstrate what is shaping the future of the security industry. For more information or to purchase a full copy of the report, click here.