Has consolidation shifted to the security integrator/installer market?
18 May 2018
Consolidation – a decrease in the number of companies in a market achieved through mergers and acquisitions (M&A) – has been an important trend among manufacturers in the physical security market for many years. More recently, the trend has also appeared to extend to the integrator market. Larger integrators have been buying up other large integrators; in some cases, they have also been buying up smaller, regional integrators to expand their geographic coverage area. We wondered if this week’s Expert Panel Roundtable has noticed the trend. We asked: Has consolidation among security companies shifted to the integrator/installer market? What is the impact?
We are seeing a phase of significant consolidation in the integration sector. However, it has been the case for the alarm industry for many decades that there is ongoing consolidation that is happening and will continue to happen. There is a sub-trend within fire and life safety consolidation, but the bigger and much more dominant trend is the strategic consolidation across security integrators. Among other factors, two things that have impacted the integrators are: 1) increased competition that led to a decline in price and margin, and 2) heightened awareness of physical and cyber security threats that increased the need to employ a tech-savvy end-to-end security integrator. More than ever, we see that customers require an integration partner that understands the convergence of physical and cyber and can offer a scalable and data-driven integrated security solution that standardises disparate platforms, improves system efficiencies, and protects against current and future security threats.
The largest 15 video surveillance vendors account for around 58 percent of global revenues. Conversely, the largest 15 systems integrators only account for 16 percent of global revenues. One reasons for the difference is that systems integrators require a significant human presence within a region. As such, it is harder for systems integrators to grow organically outside their home market. Mergers and acquisitions allow companies access to a new geographic market or customer base, or to add to their existing portfolio of service offerings. Some of the key mergers and acquisitions that have further consolidated the largest vendors include: the merger of Tyco with Johnson Controls, the acquisition of Diebold’s North American electronics security business by Securitas, and the acquisition of ADT by Apollo Global Management and merger with Protection 1 and ASG Security. IHS Markit expects that the use of mergers and acquisitions to supplement organic growth will continue
The access control market has always been a slow market to move in technology, architecture, and shifts in manufacturers. The consolidation that has occurred with the recent acquisition of Mercury Security by ASSA ABLOY is not an exception to this trend in terms of speed. This acquisition will not slow down the overall adoption of IP access control hardware, wireless locksets, electronic credentials or ACaaS services. The consolidation within the integrator market, while significant in terms of the corporations involved, does not seem to have an appreciable impact on the overall security market. The security integrator market is extremely fragmented and a mostly local and regionally driven market. The national and global integration businesses tend not to penetrate local markets well with the exceptions of Fortune 1000 and state and limited local governments.
There has been a consolidation in the integrator/installer space for many years now. Just think about all the acquisitions that the likes of ADT have made over the years, and also the acquisitions that have been enacted by organisations such as NG Bailey, Stanley and Chubb. Historically, this has generally revolved around larger players buying smaller ones. Often this approach has been used to grow their business inorganically, expanding out their geographic and market presence of their services to leverage more from their infrastructure. Looking to the future, however, perhaps the next big question is whether this existing activity will continue to grow and encompass consolidation at the larger company level? Certainly, this makes perfect sense for particularly large and wealthy security companies, who have greater ambitions in the market and want to invest in bigger expansion deals, even though the risks are inevitably higher too.
The bell curve of the industry consolidation lifecycle has natural and predictable outcomes during its stages of development. Inevitably as the industry reaches the top of the activity bell curve, manufacturers, their products and system integrators are combining for efficiency. This happens because the technologies have matured, and the industry has been less disrupted by new innovation. We should not be surprised by the integrator consolidation trends also following suit in the security marketplace. Ideally, industries can experience a longer lifecycle if they can be periodically disrupted and enjoy a flood of new innovation to power a completely new bell curve of growth and opportunity. Even as we see consolidation in the security industry, we should be excited that innovations such as AI will open up new opportunities for technology, new manufacturers, expanded market share potential, and further system integrator expansions for incumbents and new entrants alike.
Integration tends to be a localised business that requires “boots on the ground” and effective management of local operations. Even so, larger integrators can sometimes benefit from economies of scale and by replicating approaches that work in one geographic area to achieve success in other areas. These aspects of the integration business suggest an opportunity for more consolidation among integrator and installer companies. A challenge is to achieve the consolidation without compromising the quality and efficiency of the “local touch.”
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