Well this month the announcement that UTC will acquire GE Fire and Security for $1.82 billion, making this the largest deal in the last five years, confirmed at a stroke that the consolidation process is back on track. In 2009 the total value of deals grew by approximately 7% to $4.583 billion. We still have to await the outcome of consolidation activity in December but albeit on the basis of one major deal the security industry has outperformed most other industries. For example the AEC (Architecture, Engineering and Construction) business which is associated through construction activity has fallen by 30% in 2009 and many other industries have suffered a much more drastic decline but have seen some improvement in this last quarter.

When the news broke and details of the size of GE’s security business were revealed we suspect that the market research companies rushed to revise their market sizing figures yet again. The GE Security figures are now laid bare and at approx. $700m they are a fraction of what most watchers in the market believed. It looks as though the security business part of the operation pulled down the total value of the business, for an exit benchmark based on sales of 1.5 is not particularly attractive for a deal of this size for an operation having global coverage. This was a good deal for both parties but in the short term I guess that the GE negotiating team had more to celebrate on the day. In the present economic climate, two years of steeply declining revenues and profits and only one serious buyer for the combined operation, they came out with a good deal.

Momentum is now building up, driven by the fact that there is more opportunity to buy at realistic prices and the majors realise they cant maintain let alone grow through organic sales. But the market is holding its breath that confidence in the future will hold up. This month further 3rd Quarter results announced by the majors show the same dismal picture as last month with declining revenues and earnings. However at least two companies have bucked the trend Techwell Inc and China Fire and Security Group. Both have increased revenues in the Asia market and expect higher rates of growth next year. Tyco’s revenues declined but yet again they report better trading conditions in Asia. Growth in 2010 will be hard to find but it should marginally improve on 2009 trading conditions. So for those who are in the market to acquire 2010 should bring some tasty opportunities. But we expect that fewer bargains will be available in 2011.