Memoori’s recent annual report shows that the value of mergers and acquisitions in the Physical Security manufacturing industry fell to approx. $2.91Bn in 2019 almost the lowest we have recorded in the last 18 years.

The main reason for the volatility is that within the last 5 year cycle there has been at least one major multi-billion acquisition per year, but not one this year. Given that in the video surveillance sector there is a need for western companies to build up scale to compete against the Chinese suppliers, there seem few opportunities to do so.

The industry underwent a major restructuring during the period 2009 to 2011 after the 2008 financial crisis. Around that period a lack of confidence (and/or interest) by some major conglomerates caused them to divest their physical security product businesses. More recently there has also been a lack of buyers from outside the business, particularly Defense and IT. However Private Equity has retained a significant interest in the physical security industry, and this year it acquired two companies investing some $200m, which is a modest sum compared with previous years.

Competition has heightened and profit margins have fallen in some sectors of the Physical Security business in the last 3 years, but the industry has performed well, but still has scope for consolidation and the potential for growth in the business at a CAGR of 7% over the next 5 years.

Within the last 7 years there has been a significant trend for medium sized specialist companies previously totally dependent on organic growth to adopt strategic acquisition to speed up growth. These companies are much more focused within one of the 3 product sectors (Access Control, Video Surveillance, Intruder/Perimeter Protection) and this is having a significant and beneficial impact on strengthening the structure of the market.

The structure of the industry is still very fragmented with hundreds of small companies finding it increasingly difficult to compete and it looks inevitable that the general trend line of value and volume of mergers and acquisitions will regain its momentum over the next 5 years but at a more modest growth than the peak years.

To achieve a new wave of M&A growth in 2020, it will require a number of billion dollar deals and there is not an abundance of companies of this size. However we believe there will be more acquisitions in the fast growing AI Video Analytics business, along with deals in the cloud services category for video surveillance and access control; sufficient for M&A activity to grow to 2024.

More detail about the breakdown of the different types of products that are attracting acquisitions and the companies that have a history of adopting M&A for strategic planning can be found in our report. The 2019 World Survey of the Physical Security Industry is our 11th edition of a comprehensive report providing detailed market sizing and analysis of the 3 major business sectors, Access Control, Intruder Alarms / Perimeter Protection and Video Surveillance, focused on the products business.