Canon to buy Axis for $2.8 billion

Kessler: Price is ’50 percent premium over yesterday’s closing price’
 - 
Tuesday, February 10, 2015

TOKYO—Within a year of buying the leading VMS provider, camera manufacturer Canon has made an offer to buy Axis Communications, the leading network camera provider, for $2.8 billion cash.

The deal is expected to be completed in April, pending stockholder approval. The Axis board of directors has approved the deal and the three largest shareholders in Axis, including the founders, who hold close to 40 percent of the total number of shares, have approved the plan.

Fredrik Nilsson, Axis GM Americas, told Security Systems News that the deal is good news for integrators.

Canon was attracted to Axis’ “strong channel and sales organization, which means that our sales strategy will remain intact, and continue to be invested in,” Nilsson said. 

“For our integrators it really means no change in strategy or partnership. Axis will, however, get access to new technologies, as well as a strong intellectual property portfolio, which is a benefit to Axis as well as our integrators,” Nilsson said.

This is also good news for Axis stockholders, according to Imperial Capital’s Jeff Kessler.

“The price is a 50 percent premium over Axis’s closing stock price yesterday,” Kessler told SSN. “It’s a great deal for Axis stockholders.”

Canon says Axis will operate as an independent legal entity within Canon Group. The Axis brand name, management team and current structure will remain the same.

When Canon acquired Milestone last summer, Jacco Leurs, Canon’s head of professional imaging, told SSN that it had identified network video surveillance as an important driver for future growth.

Leurs called the Milestone deal a “strategic step, which significantly enhances our offering and capabilities in this market sector, and he noted that the IP video surveillance market "is a multi-billion euro industry which continues to show huge growth potential, and Canon has a strong commitment to build a long-term presence as a leader in this industry.”

Imperial Capital's Kessler said that while Axis has a healthy balance sheet and great management, the company's "stock price has been flat for the past year." The company showed 7 percent growth year-over-year in the U.S. (in local currency), which is "below the overall growth of the industry and below [Axis'] mid-double-digit goals." The company's slower growth is the result of pressure from Asian camera manufacturers who are putting out much less expensive "almost good enough" cameras and "gaining significant share in the low end of the commercial business," Kessler said.
 
Kessler said Axis has been either "slow to react to [this pressure] or its strategic plan may not have put tremendous resources into the low-end areas … but those areas are growing the fastest."

With that said, "I don't think Axis will have any problem maintaining its premium position in high-end areas." For example, larger commercial businesses and government end users "who are concerned about security," are unlikely to turn to cameras made in Asia, he said.

Kessler said that Canon "a year ago had a declining photo camera business … with competition from video chips and cellphones eroding its business. Now, in succession, it will have bought the leading VMS company Milestone and [Milestone's] leading partner company."
 
Kessler says Canon's purchases are part of what he calls the "horizontal collapse of the video industry" where we've seen consolidation such as Panasonic buying Video Insight, Avigilon buying OV's intellectual property, and purchases by Tyco and Bosch. It's a move toward the one-stop-shop model, he said.

While some may argue that consolidation is not beneficial to integrators because of risk of proprietary systems or channel conflict, Kessler says this type of consolidation provides integrators with "an easier way to install video."

Canon's offer came in the form of "a public offer to the shareholders of Axis to transfer all of their shares in Axis to Canon for a consideration of SEK 340 in cash per share."

Based in Lund, Sweden, Axis in 1996 introduced the first network camera. Today it is considered the market leader in IP cameras. It employs 1,900 people in 49 countries.