Spun off from Ingersoll Rand in 2013, Allegion (NYSE: ALLE) has become an established player in the physical security industry for commercial and residential building markets around the world. In this research note, we map the key acquisitions, partnerships, and investments made by Allegion in the past six years to reveal the firm’s strategic priorities and forecast its future development within the PropTech landscape.
The firm is one of the leaders in the access and mechanical lock segments, where it faces stiff competition from Assa Abloy AB and dormakaba Group. All three firms now place significant focus on new digital product categories, where they also compete with tech companies and innovative startups entering the market from all angles.
In its last annual report, released February 2022, Allegion reported net revenues of $2.87 billion, an increase of 5.4% compared with the previous year. The revenue increases were primarily driven by continued, strong end-market demand and COVID19 pandemic related pressures in the prior year, which easily offset the impact of ongoing supply-chain related revenue delays. Full-year net earnings were $483 million or $5.34 per share, compared with $314.3 million or $3.39 per share for the prior year.
In its third-quarter 2022 financial results, released October 27th, Allegion noted revenues of $913.7 million, up 27.4% on a reported basis and up 18.6% on an organic basis. Their Q3-2022 net earnings per share (EPS) of $1.30 showed decline in the same period in 2021 with EPS of $1.59, but the adjusted EPS of $1.64 was up 5.1% compared with 2021 adjusted EPS of $1.56. As a result, Allegion’s full-year 2022 revenue growth outlook was 13 to 14%, which increases its full-year 2022 organic revenue growth outlook to a range of 9.5 to 10.5%.
Allegion’s core products —locks, key systems, and related services— still dominate its revenue streams with a share of 35-40%. Door closers, controls, and exit devices hold the second biggest share in 2021 but are expected to be surpassed by the company’s emerging digital product categories, including electronic devices, access control systems, software, and workplace technologies, which made up 21% of Allegion’s net revenue in 2021. Doors and door systems are expected to continue to hold a stable 10-15% share of net revenues.
The continued growth of the digital products category is due, in large part, to Allegion’s record of M&A. In the first year after its spin-off, the firm acquired electronic lock company SimonsVoss, marking its intentions in the market, and since 2017 Allegion has embarked on a wide range of investments and partnerships, in addition to a spending spree which has seen them acquire a number of new firms, most notably Isonas in 2018, Yonomi in 2021, and Stanley Black & Decker’s Access Technologies Business in July this year.
“Leaders in the access control market have strengthened their competitive stance through acquisition and taking on new technology challenges, as well as becoming much more professional in marketing their products and strengthening channels of distribution,” reads our latest physical security research report.
Through resilient financial performance and strategic business moves, Allegion is positioning itself to thrive within the rapidly evolving physical security market. Here we map the firm’s acquisition, partnership, and investment landscape to identify patterns that are shaping the company’s future direction.
Allegion’s major business activity in the last six years has been dominated by moves that develop its access control technology and reach, an obvious direction for lock and door specialists as the smart building industry evolves. Each acquisition, partnership, and investment solidifies the firm's position in the physical security market across all major verticals.
Partnerships for retrofit residential smart locks with EU-based Nuki in 2018, a smart home innovation project with Amazon in 2019, and a collaboration on keyless access solutions for multifamily residences with Chicago-based Lively in 2021, have shaped Allegion's path in the residential access control vertical.
Strategic investments in Kasa Living (2020), a technology company providing flexible stay accommodations, and Mint House (2021), a startup bringing tech-enabled experiences to the hotel experience through technology, position Allegion well for access control in the evolving hospitality segment. And, a 2021 partnership with CBORD, which co-developed on-campus mobile credential solutions, adds to Allegion’s experience in the education vertical.
Strategic investments in voice access control specialist Pindrop in 2018 and in cloud-edge “seamless” access control innovator OpenPath in 2020, hint towards Allegion’s forward thinking in the space. However, the firm’s path in the access control space is dominated by the acquisitions of established commercial edge-computing firm Isonas in 2018, and of innovative IoT Cloud platform start-up Yonomi in 2021.
“The [Yonomi] acquisition is critically important because it supports our vision of seamless access. It will allow us to think of ourselves as a software business. With the software app and the data it provides, we will start to see our migration,” said Vince Wenos, Allegion’s SVP and CTO. “We have this vision of seamless access. Some of that will be solved by software. If we want to provide that, we have to become a software company. And that goes beyond just making software. That comes down to marketing and selling software and monetizing around the data that comes from the software itself. We certainly will be viewed as a company beyond the value of a device.”
The workplace strategy exhibited by Allegion in recent years represents a logical departure from the firm’s traditional business. As access control discovers its potential as a powerful building management tool beyond security, those firms leading the access control space are racing to develop building management skills. For Allegion, this new direction is clearly directed at the office building vertical, where acquisitions and investments will support the firm’s burgeoning workforce management brands to drive Allegion beyond the world of physical security.
Allegion’s 2020 investment in San Francisco-based workplace sensor vendor VergeSense was followed by a 2021 investment in leading data infrastructure platform provider Mapped. The firm then expanded its regional presence and workforce management capabilities by acquiring certain assets of Astrum Benelux and WorkforceIT in the EU, before taking another step into workforce management with last month’s acquisition of Plano.
“This strategic acquisition will add mobile-first software engineering talent to our business, while deepening our presence in attractive end-user markets like healthcare, banking and insurance, call centers, retail and municipal government services,” said the Allegion-Interflex General Manager, Bernhard Sommer.
Doors & Frames
Despite all the smart and seamless digital technology that is consuming the physical security industry, buildings still need doors. In fact, the door is still the cornerstone of access control and will remain a key aspect of physical security for the foreseeable future, but that doesn’t mean a lack of innovation in the doors and frames space.
Over the past six years, Allegion has made strong moves to cement its place as a leader in entryways with a series of acquisitions for market expansion and technological innovation. The purchase of door and frame specialist Republic, in 2017, expanded their US presence, while the acquisition of Qatar Metal Industries (QMI) in 2018 provided a manufacturing base in the fast-growing EMEA region. However, QMI was sold in 2021, at the height of the construction boom leading up to the World Cup in Qatar.
The 2018 acquisition of TGP developed Allegion’s glass product and fire safety portfolio, and later that year the acquisition of Aurora Door Systems (AD Systems) expanded the firms reach into the healthcare vertical with a range of new products and an established customer base. The highest profile acquisition in the doors segment came in July 2022, when Allegion announced the acquisition of Stanley Black & Decker’s Access Technologies business for $900 million in cash. The division serves a wide range of non-residential verticals and generated approximately $340 million in net sales in 2021.
“This acquisition bolsters Allegion’s seamless access strategy with a category market leader, while growing the Allegion Americas core business through adjacent automatic entrance products and installation and maintenance services,” said David D. Petratis, Allegion chairman, president and CEO. “In addition, the Allegion team is proud to welcome Access Technologies’ dedicated employees, who bring immense talent and expertise in safety, security and service.”
Allegion is a physical security market leader taking a progressive approach to keep up with dynamic market trends. Their strategic partnerships and bold approach to investment has paved the way for carefully selected acquisitions that support Allegion’s evolution with the data and building management skills required to provide full-service access control in the future smart buildings market.