Growing through M&A more viable than ever

Industry pros look at the many opportunities within the current M&A landscape
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Wednesday, June 13, 2018

YARMOUTH, Maine—Influenced greatly by the level of M&A activity each year, the security landscape is constantly changing and evolving. With so much happening in the M&A space right now within security, there are opportunities for companies to grow—even to expand their capabilities and technology offerings—through strategic acquisition.

“Over the past few years we’ve seen an acceleration of M&A activity in the security industry, including a number of large deals that have reshaped the overall landscape,” John Robuck, Capital One’s managing director of security finance, told Security Systems News in an email interview. “Apart from the larger deals, though, there are also numerous opportunities for small and mid-sized businesses to leverage M&A to grow their businesses.”

DTT CEO Mike Coffey told SSN in an email interview that there are several driving factors to this increase in M&A activity, most prominently financial and industry dynamics.

“The financial dynamics right now have been driven by low interest rates, which we’ve all heard a lot about, and frankly that means more capital availability for good quality businesses,” said Coffey, noting that industry dynamics are even more important to DTT.

“First and foremost, there is massive opportunity behind video, which is being driven by increased use cases, analytics, and the ultimate value and ROI achieved by the end customer,” he explained. “If you combine this opportunity with the fact that the security industry has historically been a very traditional industry—and perhaps even viewed as slow to change by some—then M&A becomes a good tool to catapult a more traditional player toward the future.”

DTT worked with Capital One during its acquisition of LP Innovations, and Coffey said that the LPI deal is a good example of DTT’s strategy when it looks at a potential acquisition.

“When doing an acquisition, we are typically looking for complimentary services or markets,” he said. “LPI has the distinct advantage of providing both. This means that we can go to both customer bases within DTT/LPI and offer them a tremendous set of services by utilizing video, analytics, and DTT’s software, or utilizing LPI’s prescriptive analytics and field services. We now offer a more comprehensive set of services in this space than anyone else, and we can do this for both small operators as well as for very large organizations at scale.”

He continued, “The DTT history comes from the hospitality space where we deliver a B2B solution, but targeted at those organizations who have a heavy consumer customer base themselves (we think of this as B2B2C). Now with LP Innovations (LPI), we have expanded both our loss prevention capabilities as well as our retail focus while staying in a similar model.”

Robuck added, “We have also seen M&A used as a tool to develop new or existing technologies. From expanding into new regions to acquiring new, adjacent capabilities to offer clients, with the right partners, companies can strategically pair M&A with their organic growth strategy.”

Both Robuck and Coffey stressed the importance of companies doing their due diligence when vetting a potential acquisition.

“If I’d kept count for every time someone offered a ‘new technology’ as an M&A opportunity over the last 10 years, I’d have a pretty big number,” said Coffey. “We think the key to new technology M&A is going with proven, scalable technologies. A lot of our industry is dealing with life, health and safety issues, or dealing with applications that have real-time or daily needs. Therefore, we would argue that a high premium is placed not just on new technology, but on new technology that is proven and operating with some scale.”

Coffey also pointed out that a strategic acquisition could bring a company more value beyond traditional security, which he sees as a growing trend.

“We think that a lot of the opportunities are going to be ‘beyond security,’ and this is a mantra that we really live by,” Coffey said. “While we have surveillance roots, we think the future opportunities are right where we play—at the intersection of analytics, video, and SaaS solutions that offer value in terms of loss prevention, guest experience, merchandising, virtual management presence, and more.” 

Robuck also sees this trend of companies offering more than just security, noting, “We are continually seeing our clients find ways to deliver new value above and beyond many security basics.”

He continued, “In this rapidly evolving environment, security executives must maintain high levels of awareness in the market to keep up, as change also brings opportunities for those businesses willing to look ahead and grow knowledgeably—particularly by leveraging M&A.”