Security Solutions Market Update – September 2024

Consolidation Likely to Transform Systems Integrators in the Security Solutions Market

Capstone’s latest Security Solutions Market Update reports that following a bounce-back year for merger and acquisition (M&A) activity in the Security Solutions sector during 2023, transaction volume through year-to-date (YTD) 2024 has softened marginally, while maintaining solid deal flow. Systems integrators, offering both installation and monitoring, have utilized the subscription model to become one-stop-shops for the Residential and Commercial end markets, with integrators projected to control the future Security Solutions market.

Consistent revenue growth among leading public companies has catalyzed significant confidence in the health of the Security Solutions sector. Publicly traded market participants have begun transitioning to primarily service-based protection offerings to sustain long-term growth with annual recurring revenue (ARR). The shift toward a one-stop-shop business model for integrated physical security has complemented current consumer spending habits, which have tended to favor subscription-based services over one-off retail purchases. Active buyers in the space have also capitalized on strong levels of sector demand by making large accretive acquisitions to improve equity value.

The future of the Security Solutions sector is likely to be led by full-service systems integrators. An increased need for residential and commercial security systems has pushed customers to demand a lower cost of security ownership. In turn, the demand for sector players offering one-stop-shop services that include installation, monitoring, maintenance, and integration is set to increase. One of the more crucial qualities for the future systems integrators will be the ability to adapt to an evolving technological landscape and assimilate new technologies into the product suite efficiently at scale.

Acquisition volume in the Security Solutions sector has reached 119 transactions through August 16, a 4% decline compared to the prior year period as a lack of sponsor-led platform transaction activity has subdued overall deal flow. Accounting for only 5.9% of total deals and equivalent to seven transactions through YTD, platform acquisition activity in the sector has mirrored sentiment across the broader M&A market. However, sponsor-backed strategic buyers have continued to deploy aggressive roll-up acquisition strategies to consolidate the regionally fragmented Fire & Life Safety market. Although valuation information has remained sparse in the private company-laden Security Solutions sector, businesses in the space have attracted robust middle market purchase prices. Security systems integrators have received robust M&A attention across the sector’s five main segments through YTD. In the Access Control segment, Linx Partners acquired Black Creek Integrated Systems (May, undisclosed), a systems integrator for correctional facilities. Pye-Barker Fire & Life Safety acquired Alarm Specialists (April, undisclosed), an integrator in the Alarm Monitoring segment, while ADT Commercial acquired video surveillance integrator, DIGIOP, in March for an undisclosed sum.

Also included in this report:

• An overview of public company performance across the sector’s main segments.
• Notable recent transactions in the Security Solutions sector.
• How the leading systems integrator of the future is likely to be constructed.

Capstone Partners’ Security Investment Banking Team provides M&A, capital formation, and financial advisory services to the owners of middle market businesses in the Security Solutions Market. Our team partners with leading mid-to-large sized businesses that serve growing end-markets.

For more information on the Security Solutions Market trends featured in this report or to speak with one of our ADGS M&A Team members about how to grow, value, and/or sell your company, we are here to help. Contact us today.