The physical security industry has developed a healthy funding environment in recent years with venture capitalists providing significant backing to security companies. But this month’s $192 million investment by Japanese security integrator SECOM, into video surveillance company Eagle Eye Networks and access control provider Brivo is somewhat of an outlier. In this research note, we take a closer look at the deal.

Brivo and Eagle Eye Networks, are independent and separate companies, however, the controlling shareholder of both companies is the same man, Dean Drako. Drako was a co-founder and former CEO of IT security company Barracuda, which was acquired by KKR in a $3.8 billion deal. In addition to his stakes in Brivo, Eagle Eye Networks, and other investments, he also owns an electric car company, Drako Motors.

“A lot of investors have woken up to the opportunity for the cloud conversion and the application of AI in the physical security market,” Drako said about growth in the Physical Security as a Service space. “We are projected to grow 15% annually for the next several years.”

Memoori estimates annual revenues from the physical security product market should increase 9.13% in 2022, rising to $42.3Bn, and predict that between 2023 and 2027, growth will average around 6.5% per annum. Security & Access control market, and particularly video analytics generates the lion’s share of overall AI revenues in smart buildings, representing just under 50% of total sales in 2020 at $558 million, according to Memoori’s analysis of the Physical Security market.

In 2015, Drako acquired Brivo for $50 million. Founded in 1999, Brivo is a cloud-based access control provider offering a wide variety of security solutions to markets including the commercial real estate, healthcare, education, and manufacturing sectors.

Brivo attempted and failed at a SPAC route to IPO in 2021. Through a merger with Crown PropTech Acquisitions, a publicly traded special purpose acquisition company (SPAC), the transaction valued the company (pro forma) at $808 million. Eagle Eye Networks was also a strategic investor in the PIPE (Private Investment in Public Equity) transaction. Crown, however, was unable to raise the required funds.

This month’s $192 million investment from SECOM will be divided, with $100 million into Eagle Eye and $92 million into Brivo. Both companies stated their intentions to use the funds for R&D, and specifically to build more AI-based technology into their respective platforms, but Drako quickly dampened any talk of mergers in an interview with TechCrunch.

“I’m a believer in open systems, and in the business market, open platforms are going to win in the long run, that is what they demand and need so we wanted to make sure we built with that in mind,” Drako said. “It’s hard because the engineering teams tend to take shortcuts when they work at the same company.”

Established in 1962, SECOM maintains a steady ~$10 billion in annual revenue through its 3.6 million subscribers across 17 countries. SECOM would be described as a low-growth company with revenue increasing by less than 20% over the entire last decade, a CAGR of just 1.7%, and while profit is strong, its margins are generally less than 10%. So investment in SaaS companies like these could help to improve margins in the future.

SECOM has significant cash resources, over $3.7 billion in 2022 according to the company’s latest annual report, which also stated more than $1 billion in cash generation for the year. The investments, therefore, are not a significant risk and could create healthy returns from two companies on an upward trend.

Given the recent slowdown in Western venture capital investments and reduction in technology company valuations, it makes sense to look outside traditional investor circles, especially where there could be additional synergies. And with SECOM's deep pockets, they can help facilitate better access to Asian markets for Eagle Eye and Brivo.

They will need this influx of new captial and SECOM's sales channels to remain competitive amongst a variety of other well-funded rivals. In the last few years, silicon valley based Verkada raised $205 million, Anyvision (now Oosto) raised $235 million, and Motorola’s security shopping spree, has created a platform for Ava and Openpath to step up.

Brivo and Eagle Eye Networks’ investor may be unique, but their investment levels are not, so they will be hoping SECOM’s stability and experience will make the difference in this dynamic market going forward.