Guest Commentary: Video surveillance innovation driving security industry growth, investor interest

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Wednesday, December 21, 2016

Over the past year, the security industry has continued to grow and draw significant interest from investors, due in part to the noteworthy gains of one technology in particular: video surveillance.

A Capital One survey conducted in November found that more than half (52 percent) of security professionals see video surveillance as the technology trend that will have the biggest impact on their businesses in the coming year—a significant increase from 2015, when only 23 percent of respondents answered similarly. Twenty-eight percent expect interconnected devices to have the largest industry impact in 2017.

In addition, respondents were optimistic about the overall financial health of the security industry, with 87 percent expecting improved financial performance in the coming year. This optimism is evident as mergers and acquisitions continue to shape the market; more than two-thirds (69 percent) of security system professionals expect to complete at least one acquisition in the next year.

Video surveillance technologies, along with interconnected devices, are shifting the industry and delivering more sophisticated data to users, allowing companies to refine their business strategies.

By employing these new technologies, security providers can offer commercial clients more ways to customize applications and analytics. Video, in particular, is strengthening traditional monitoring and offering valuable business insights.  As technology has improved, analytics software has become more affordable, more efficient and more effective. As a result, more security companies have access to the video space than ever before.

From a financial perspective, there are a few notable ways that these services are transforming how lenders approach potential deals and transactions:

·       First, managed video services have the potential to create a long-term recurring revenue stream for security companies, versus a one-time sale of equipment. Companies can sell and install the needed equipment, and then use analytics software to address not only their client’s security concerns, but also provide insights into valuable business metrics, such as customer foot traffic or employee response time.

·       Advance rates for monitored video services contracts, traditionally lower than most other security services, have started to increase, as margins have become more comparable to alarm monitoring, for example, and contracts have incorporated standardized terms.

·       As video surveillance companies grow in size, they are generating more attention from more sophisticated investors, such as private equity firms. The wave of private equity money raises the stakes—and the competition—across the segment and the entire security industry, potentially driving up the value of companies and funding the next generation of technologies and innovation.

As we look toward 2017, our survey has reaffirmed that technology, innovation and financial optimism will continue to drive the security industry. These key trends are showing no signs of stopping, and it’s critical that security companies work with a reputable financial partner with deep industry expertise in order to take advantage of them. With the right lender and strategy in place, these technologies can lead to new capabilities, customers and long term growth.