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VIDEO SURVEILLANCE By Frank De Fina Conditions are Prime for Industry Consolidation Maybe we will get it right this time C ould the security and video surveillance market be on the verge of a period of industry consolidation to rival the mergers and acquisition (M&A;) frenzy of the 1980s? The thought is not as outlandish as it seems. Consider that the security market continues to be extremely fragmented while other markets — for example, the wireless communications market — have consolidated. How long can security defy the trends that are so obvious in comparable technology markets? Are we really that different, or have previous attempts at consolidation just been badly managed or ill-timed? term route to faster growth and greater profitability. They see gems of technology innovation ready to be mined. The convergence of multiple technologies around IP networking introduces new synergies in previously unrelated product categories. We keep hearing that big companies have a lot of cash reserves — might they spend them on acquisitions? Quite possibly. Not since the 1980s, when leveraged buyouts fueled an unprecedented M&A; period, has the climate seemed so ripe for consolidation. There is an abundance of worthy candidates to be acquired and good, solid companies well positioned to buy them. Economic Factors The economy is improving, and there are a lot of companies in the security industry that have been hurt by this latest drawn-out recession. It is conceivable that some of these companies may be good targets for merger or acquisition, given the need to shore up their finances to compete effectively going forward. Survival is a strong motivator and often a necessary business strategy. There are plenty of successful startups whose founders have taken them as far as they can without an influx of cash. There are companies whose cost structure can benefit from the economies of scale a larger owner can provide. There are also several bigger players — whose growth has been slow lately — looking to expand and find new product categories or technologies to jumpstart the tepid optimism of a weak recovery. They want an aggressive, long60 The Benefits of Consolidation Innovation can only take companies so far — then they can benefit from an influx of cash, access to a larger infrastructure and maybe even new management. To be successful, more companies will seek to be larger, capitalized and committed. Truly successful long-term players are created at the intersection of technology innovation and business viability. New resources can take moderately successful companies to the next level. Ideally, an acquisition seeks to preserve what made the acquired company successful to begin with while adding new resources, more stability and the luxury of taking a long-term view rather than struggling with immediate financial concerns. Unfortunately, we have often seen it done www.SecurityInfoWatch.com | SD&I; | September 2013