Broadly categorized, electronic access control systems, digital cylinders, and mechatronic locks are the leading technologies vying for a share of the immense market represented by the upgrading of traditional mechanical locks. In this research note, we explore the European vendor iLoq and mechatronic locks in general, which are locks that conform to one of the main five mechanical cylinder standards and that combine the physical insertion or turning of a key but with the addition of electronic identification of that key.
Mechatronic locks emerged to bridge the gap between traditional mechanical locks and electronic access control systems with a range of features that brought down cost while improving usability and maintaining security. The cylindrical format makes for easy retrofit installations, and these self-powered devices do not require the costly and disruptive cabling infrastructure of modern access control systems. Digital authentication and re-programmable keys then provide additional flexibility and control, while the access data trail and the ability to block a key at any time adds levels of security for doorways.
These features position mechatronic locks to take a significant share of the huge traditional lock market and many of the leading security players have launched mechatronic products alongside a range of startups and lock-specific firms. The market for mechatronic locking and digital cylinders is fragmented, with many suppliers also active in the adjacent markets of mechanical locking, non-cylinder digital locking, and access control products and systems. This fragmentation is in line with the overall global security products market.
“There is clearly an opportunity for mechatronics and digital cylinders, but to achieve full penetration they will need to reduce their prices,” explains our latest security report. “Assa Abloy is the clear leader in this market with its established global brands addressing the mechatronic and digital cylinder segments. Its core position in mechanical locking and the broadest product range for multiple use cases and vertical markets will ensure its dominant status. Dormakaba is ranked in the top three access control products providers in EMEA with a global one-stop shop portfolio and a large installed base of mechanical locks providing a captive replacement and renovation market for mechatronic and digital cylinders.”
In 2016, Assa Abloy, published a survey that showed 77% of respondents believed “very few business premises will have mechanical locks 10 years from now”. This caused some discussion in the industry and a feeling that to achieve this type of growth would require a massive replacement of hundreds of millions of mechanical locks. Ultimately, this will only be achieved if mechatronic lock prices come down well below €200 per lock for mass-market adoption to kick in. However, there appears to be a strong belief in the industry that mechanical locks will be increasingly replaced by electronic devices and that this will be a substantial market by 2028, especially in key regional markets.
“Northern Europe and Scandinavia are regions where the penetration of mechatronic and digital versions is highest and not least because a number of the more innovative manufacturers are located in this region. The replacement/retrofit market offers an almost guaranteed business in both the industrial and commercial sectors. It is estimated that it accounts for around 70% of business for replacement of existing door locking solutions,” explains our latest security report. “One notable Scandinavian innovator in the wireless access control market is Finland-based iLoq. In 2016, iLoq introduced a battery-free mobile access sharing solution. In the company's digital locking solution, one key can be programmed with the access rights for all the locks needing to be opened, providing access around a building.”
in 2019, iLoq was acquired by Nordic Capital for around €190 million, a strong indication of the company's potential for growth. During the pandemic, iLoq has faced many of the same challenges relating to supply chain and inventory management, as well as general market disruption, that we have seen across the global economy. However, the physical security market has performed well when compared with other markets as a whole, and iLoq has grown through the crisis.
For the sixth quarter in a row, iLoq’s revenue growth was 30% or higher, culminating in a Q4 2021 revenue growth of 39%. Total revenue in 2021 grew 39% compared to full-year 2020, driven by strong sales across all regions. iLoq’s 2021 EBITDA amounted to MEUR 22.6 (12.6), corresponding to a 22% (17%) EBITDA margin, mainly due to increased volumes and related operational leverage.
Operational cash flow was MEUR 7.3 (8.0), negatively impacted by the increased inventories applied to mitigate any possible supply chain disruptions. The company is expected to continue to have higher than normal inventories during 2022 and until the global component situation improves to guarantee its ability to produce and ship iLOQ products to customers.
“Management believes that the continued strong financial results achieved in Q4 2021 were a result of continuing to execute the Group’s long-term strategic plan which leverages the accelerating penetration rates of digital access management systems in its key markets,” reads iLoq’s 2021 end-of-year financial statement.
In Q4 2021, iLoq also confirmed the initial stages of an agreement with leading European residential real estate company Heimstaden, who hold a portfolio of approximately 150,000 apartments across ten countries. The partnership aims to proactively phase out mechanical locking systems by retrofitting existing properties and equipping new builds with the latest iLoq 5 series software platform which includes the new iLoq Home solution launched in January 2022. The cooperation demonstrates that Heimstaden clearly recognizes and understands the benefits of digital access management throughout the housing value chain, and provides a solid launch base for the firm’s latest product.
The overlap of mechatronic locking systems and typical access control is plain to see, but their differences are bringing the two technologies into the market from different angles. The major driver of demand for mechanical locks is the push to replace cylinder locking systems with higher security mechatronic and digital versions. This has led to success as the disruption to mechanical master key systems and padlocks for commercial and multi-occupier residential purposes. However, new feature-rich, smartphone-enabled, multi-lock mechatronic locking systems, like iLoq Home, now take that a step further with access control-style control over door locks.
“New mechatronic locks are much more innovative, and secure while prices have fallen as volume has increased, that trend is forecast to continue. For future growth to continue, however, prices need to continue to fall, as competition from electronic access control systems continues to threaten this market,” reads our comprehensive new security report. “As our analysis demonstrates, the access control market often fails to fully embrace new and emerging technologies to achieve its full potential and can sometimes be seen as complacent. Buyers regard access control systems as an expensive item and almost half of system integrators believe that the biggest challenge is customers not budgeting enough to pay for the system.”