Security Solutions – August 2021

New Technology Becomes Top Priority for Commercial Security Solutions Providers

The Physical Security industry is in the midst of transformation bringing benefits to users and opportunity to industry players. However, legacy providers unable or unwilling to embrace and invest in new technologies are likely to be branded as obsolete.

Tom McConnellManaging Director, Capstone Partners

The pandemic presented new and unique challenges for security solutions providers, placing them on the front lines of protecting people from COVID-19 exposure and protecting empty office buildings from break-ins and damage during the lockdowns. As a result, merger and acquisition (M&A) activity year-to-date (YTD) outpaced 2020 by 60% vs. the same period last year, with 110 transactions announced or closed. Industry participants offering security solutions vital to the post-COVID hybrid work environment have experienced heightened demand, as 75% of security leaders stated the pandemic increased the importance of physical security at their organization, according to Brivo’s January Physical Security Industry survey.¹ As employees began the transition back to the office, 72% of security leaders shifted their focus to safely reopening facilities through enhanced security technology, and 26% adopted new forms of technology to enforce contact tracing, frictionless access, and centralized systems integration.

Technological Innovations Spark Commercial Security M&A Activity

Twenty percent of corporate executives plan to reduce office space by 10-24% over the next 12 months, which will cause a significant disruption in the Commercial Security sector, according to Bloomberg.² With this shift, YTD M&A transactions targeting traditional alarm monitoring providers (six deals) decreased by 60% and 75% compared to the same period in 2020 (15 deals) and 2019 (24 deals), respectively. However, as organizations reevaluated office setups and security protocols in preparation for the resumption of in-person work, technological innovations in security management, video surveillance, and access control proliferated to provide cost-effective, streamlined solutions. This rapid adoption prompted strategic buyers to bolster product and service offerings through targeted M&A, with private equity firms building platforms to capitalize on favorable tailwinds. The following offerings have recently attracted heightened demand:

• Remote Management: Provides interoperable solutions between physical security endpoints such as video surveillance, alarms, and access points to eliminate on-site management. In April, Lantronix (Nasdaq:LTRX) announced its acquisition of Transition Networks from Communications Systems (Nasdaq:JCS) for $32 million. Transition Networks supplies connectivity products for physical security, surveillance, and smart buildings and recently debuted its secure remote access solution enabling instantaneous access to internet protocol (IP) cameras and lockdown measures for remote sites.
• Identity Verification: Integrates biometric software with video surveillance systems to collect data on facial recognition, body temperature, and weapons detection. PRE, a leading security consulting firm, announced its acquisition of TrueFace in June for an undisclosed sum. TrueFace develops and deploys biometric software for new and existing video surveillance systems to improve on-premise security, enhance security analytics, and increase operational efficiency.
• Frictionless Access Control: Eliminates the use of all physical credentials as the access control system relies on video surveillance or full-body scanners. Recently, Maynbridge Capital announced the platform acquisition of Zedcor Security Solutions in May for an undisclosed sum. Zedcor's Gate and Access Control segment combines mobile software and access control devices for hands-free entry to commercial business facilities.

Fire & Life Safety Services Consolidate to Combat Rising Commercial Fire Threats

The number of natural and human-created fires in the U.S. continued to rise YTD, with 33,953 total recorded fires damaging over two million acres, according to the National Interagency Fire Center.³ With the number of fires in commercial buildings increasing 30% over the past decade, security providers accelerated M&A transactions to bolster fire and life safety products and services for commercial clients. As a result, the segment comprised 30% of M&A targets to-date (33 deals), compared to 14% of targets during the same period in 2020 (10 deals). Of recent note, Highview Capital-backed National Fire & Safety announced the acquisition of Texas Fire & Safety in May to scale product output and installation services for commercial clients in the fire-prone regions of Texas. Additionally, National Fire & Safety stands to gain over 3,000 existing clients in the acquisition including blue-chip and industrial customers, according to a press release.⁴ Terms of the transaction were not disclosed.

In addition to pure-play security providers, emergency management companies have also recently engaged in M&A to enhance digital fire detection and response capabilities. In June, Genasys (Nasdaq:GNSS), a global leader in critical communications solutions, acquired Zonehaven for an enterprise value of $23.4 million. Zonehaven's platform facilitates evacuation pre-planning and analyzes sensor data to identify ignition points in the event of a fire. Genasys pursued the acquisition to accelerate revenue growth in its Fire Safety & Response sector by absorbing the 170 fire districts currently covered by Zonehaven, according to its investors presentation.⁵

Healthcare and Postsecondary Education Drive Commercial Security Demand

With the resurgence of in-person medical visits, healthcare providers have implemented heightened security practices in the form of uniformed guards, access control, and video surveillance to protect both staff and patients. Healthcare workers, specifically nurses with high levels of patient interaction, accounted for 50% of victims of workplace violence in 2021, according to Security Magazine.⁶ In response to the increasing reports of attacks in healthcare settings, organizations such as the University of Kentucky Chandler Hospital and Good Samaritan Hospital have increased security coverage and IP cameras at access points and intend to install metal detectors.

Universities and colleges have also enhanced physical security as students and faculty returned to campus. Of note, the University of Arizona commissioned automatic license plate recognition (ALPR) cameras from Genetec, paired with Genetec's AutoVu Managed Services to monitor traffic flow on campus for COVID-19 vaccine distribution and visitor management, according to Security Magazine.⁷ Genetec demonstrated resilience through the pandemic with the pursuit of alternative use-cases for its video management system (VMS) and analytics offerings, resulting in a 17.4% market share of the global VMS market in 2021, up from 16.0% in the prior year, according to a press release.⁸

"Throughout the pandemic, when organizations needed to reinvent themselves and adapt to the new reality very quickly, businesses became creative about how they used, redeployed and expanded their security systems across their organizations. With a unified security platform that ties in video surveillance with access control, ALPR, analytics and more, our customers were able to expand the role of physical security to go beyond traditional applications to deliver more value and improve business operations, without requiring massive investments," Guy Chenard, Genetec Chief Commercial Officer, said in the press release.

Endnotes

1. Brivo, "Brivo Smart Security Trends Report 2021," https://resources.brivo.com/enterprise-security-guide/brivo-smart-security-trends-report-2021#main-content, accessed July 9, 2021.

2. Bloomberg, "20% of Corporate Executives Say They Plan to Reduce Office Space," https://www.bloomberg.com/news/articles/2021-03-25/office-cuts-are-coming-with-20-of-u-s-companies-paring-space, accessed July 9, 2021.

3. National Interagency Fire Center, "National Fire News," https://www.nifc.gov/fire-information/nfn, accessed July 9, 2021.

4. Businesswire, "Highvew-backed National Fire & Safety Announces Acquisition of Texas Fire & Safety," https://www.businesswire.com/news/home/20210526005539/en/Highview-backed-National-Fire-Safety-Announces-Acquisition-of-Texas-Fire-Safety, accessed July 12, 2021.

5. Genasys, "Investor Presentation Summer 2021," https://genasys.com/wp-content/uploads/Genasys-IR-_-Summer-2021.pdf, accessed July 12, 2021.

6. Security Magazine, "Workplace Violence Rises, Particularly for Nurses, Frontline Workers," https://www.securitymagazine.com/articles/94857-workplace-violence-rises-particularly-for-nurses-frontline-workers, accessed July 12, 2021.

7. Security Magazine, "University of Arizona Uses ALPR for Vaccine Roll-out," https://www.securitymagazine.com/articles/95294-university-of-arizona-uses-alpr-technology-for-vaccine-roll-out, accessed July 12, 2021.

8. GlobeNewswire, "New Omdia Report Shows Genetec Outpacing VMS and Windows-based Recorders Market Despite Pandemic," https://www.globenewswire.com/news-release/2021/07/12/2261297/0/en/New-Omdia-report-shows-Genetec-outpacing-VMS-and-Windows-based-recorders-markets-despite-pandemic.html, accessed July 13, 2021.