When the world leader in open Video Management Software (VMS) is acquired it’s not surprising that it results in many hundreds of column inches of widely differing opinions; usually surrounding the impact it could have on VMS and the wider implications for the IP Video Surveillance industry.

Some of this discussion has focused on “Why Canon and not a major camera manufacturer like say Axis?”

It surprised many in the industry that Canon, not a big player in the IP Network camera market, should steal this coveted prize from right under the noses of the major camera manufacturers. But it’s more likely that these major players decided it could have a negative effect on their camera sales. Do their customers prefer the status quo of independently selecting a VMS supplier?

We suspect that they canvassed a number of customers and on balance found that the cons outweighed the pros and the risk of buying into the VMS business (incidentally one order of magnitude smaller) would not be worth taking.

So if this theory is correct why would Cannon be prepared to take this risk? Well they have less to lose and a lot more to gain. They have much expertise in camera technology but have so far failed to combine this with application know how on the techno / commercial aspects of the video surveillance business; which would enable them to compete with the best camera manufacturers in the world.

The synergy of this acquisition is that they can learn this from Milestone. For Milestone, they will gain investment dollars and move their product development on to consolidate their current position in VMS and enlarge their scope to take in integration opportunities in Access Control and beyond. Possibly moving on to other aspects of control and monitoring the built environment and taking advantage of the current hype surrounding the Internet of Things. The acquisition certainly creates a significant new player in the global video surveillance market.

Whilst financial details have not been disclosed an exit valuation on 2013 revenue of around 2.5 to 3x Revenue looks likely, based on findings from our annual report on M&A and investment activity in the Physical Security business - http://memoori.com/portfolio/thephysicalsecuritybusinessin2013/

On Friday afternoon last week, Google’s Nest Labs announced they are acquiring Dropcam Inc. for $555 million to boost its offerings for the connected home. Dropcam makes in-home cameras that can be checked from a smartphone anywhere in the world, an offering that would broaden Nest’s product line into home security. Nest currently sells digital thermostats and smoke alarms that can also be checked and adjusted remotely from mobile gadgets.

According to IPVM, Dropcam has projected sales of around $50 million for 2014 which would give an exit valuation of approx. 10x Revenue. Relative to other home oriented camera companies or surveillance manufacturers, the valuation is extraordinary. For example, Lorex, a common brand available at big box retailers, had revenue of approx. $75 million when they sold to FLIR in 2012 for just $60 million. That said, 10x revenue multiples are nothing new for Silicon Valley acquisitions - http://ipvm.com/report/google_acquires_dropcam_for_$555_million