Security

Majors in the Security Business are Losing Share, Confidence and Ambition Whilst They Sit on Their Cash

The third quarter results of the major security players reported this month would suggest that the market for electronic security products and systems has not yet bottomed out. The decline in security sales, where reported, was around 15% compared with the same period last year. As also noted last month it is evident that the specialist suppliers such as Axis, L-1 Identity Solutions, Milestone and many others are still producing remarkable growth in sales given the present difficult trading conditions. These medium sized focused and well established companies have seen their growth decline but have confidently pressed on with expansionist plans. By comparison the major traditional global suppliers have cut back heavily on expenditure and have built up their cash reserves. We can deduce from this that the majors must now be losing market share whilst the market is becoming more fragmented, for there is no progress in consolidation which not surprisingly is well down […]

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The third quarter results of the major security players reported this month would suggest that the market for electronic security products and systems has not yet bottomed out. The decline in security sales, where reported, was around 15% compared with the same period last year. As also noted last month it is evident that the specialist suppliers such as Axis, L-1 Identity Solutions, Milestone and many others are still producing remarkable growth in sales given the present difficult trading conditions.

These medium sized focused and well established companies have seen their growth decline but have confidently pressed on with expansionist plans. By comparison the major traditional global suppliers have cut back heavily on expenditure and have built up their cash reserves. We can deduce from this that the majors must now be losing market share whilst the market is becoming more fragmented, for there is no progress in consolidation which not surprisingly is well down on its peak in 2006/7.

There has been a rapid slowing down in the consolidation process since the start of 2008 but it was not until August and the financial melt-down that this trend became manifest. However as we have seen during the last three months merger activity has increased significantly on the same period of 2008. So are the green shoots of consolidation starting to appear and will they grow and flower? Well if so, don't expect the majors to prime pump it for so far they have been conspicuous by their absence from this process. Most of the activity in the last nine months has come from relatively new players such as Stanley Works, Cisco, General Dynamic and Flir etc. If we extend this period by another year then relative new entrants such as UTC Fire & Security and Schneider Electric dominated consolidation activity.

This business prior to 2007 was in the major throws of consolidation and it is vital that this continues for all stakeholders in the business. Our analysis shows that the main restriction is the fact that the major global suppliers have for the most part withdrawn from the acquisition market, because they have lost confidence at this time to commit to the future. It has been left for the medium sized businesses to maintain their strategy for growth through acquisition and now merger and a number of relatively new entrants have recently bought into the security business.

The current situation does give rise for caution but it also presents opportunities to pick up technically smart companies that are badly in need of cash injections to continue product development and capital venture companies are not know so interested in taking a risk in this business.

Last month we discussed the various implications and options of a bid for GE Fire & Security for if this goes ahead it could remove the log jam. There has been very little news or rumours this month but analysts are placing their bets on UTC Fire & Security and have also put Tyco into the frame. These are probable candidates but there are also at least another four possibles. Whichever of these companies acquires GE Fire and Security will become the number 1 supplier. Will the others then be tempted to grow their business or will they continue to sit on their cash?

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