For UTC this is a deal of 2 halves with the old Edwards Fire Detection business being the jewel in the crown and the security business looking as though it needs a serious technology revamp. The fire business fits in well with their current operations. It was purchased by GE in March 2005 for $1.4 billion and in 2008/9 contributed $500m of the total revenues of $1.2 billion. Without details on profitability it is not possible to put a valuation on this operation but sold as a separate entity it would have raised a lot more competition and may have reached a multiple of 2 times revenue.
When UTC purchased Kidde in 2004 they paid $2 billion on an exit multiple based on revenue of 2. Both companies are essentially product manufactures with high brand awareness - Kidde focused more on the industrial market and Edwards on commercial buildings. This acquisition will make UTC the market leader in fire detection when based on product and installed systems business and they should be able to leverage more business out of the Edwards brand than GE were able to.
This brings us to the second half, GE’s security business which looks to be much flakier. Built on a firm foundation of intruder alarm systems, GE acquired during the first half of this decade such notable companies as Interlogix, VisioWave, CoVi Technologies, Kalatel and GBC and Detection Systems. Together with MASterMind Integrated Software Platform they deliver the full spectrum of physical security equipment and can provide a fully integrated, enterprise solution for monitored security service providers and proprietary central stations.
Well that looks pretty impressive on the face of it, but the general opinion amongst 'experts' is pretty unanimous, that most of the security products are weak and some are well past their sell by date with the exclusion of MASterMind. Where they have good products sadly it would appear that UTC possibly have better ones, which appears to be the case with Lenel access control systems and GE’s Casio Rusco product offerings. The gap in UTC’s portfolio of a leading edge IP Surveillance product has yet to be filled and this is the largest and fastest growing segment of the market.
UTC talk about the opportunity to grow the value add service business on the back of GE’s mainly product business. Whilst this business model has worked well for them in Fire and Safety it will be a much slower process in the Security market which is so fragmented. Installers and Integrators have plenty of choice and they don’t need to buy products from a company that could also be a competitor.
However the deal is good for UTC and also for the industry. This month will see the largest value of transactions since we began monitoring consolidation in the security business two years ago. Momentum is now building up, driven by the fact that there is more confidence in the future and opportunity to buy at realistic prices.