Market consolidation, good or bad?

May 2016 CCTV, Surveillance & Remote Monitoring

We seem to be in a period of consolidation in the security market. Enormous amounts of money are being spent on buyouts and mergers, such as Canon buying Axis and Milestone, Johnson Controls and Tyco merging, Avigilon buying what amounts to a ton of video analytics patents, Flir buying DVTel and so on.

Some say this is a natural progression of a maturing market, others may suggest that western companies are reacting to competition from China, where quality products are being sold at lower costs. Whatever the reason, the market is changing. And no matter the reason, the person who will feel the impact, whether positive or negative, is the customer.

Hi-Tech Security Solutions asked industry experts why we’re seeing the spate of mergers and what the eventual outcome could be.

Ingo Mutinelli, sales director at Elvey Security Technologies.
Ingo Mutinelli, sales director at Elvey Security Technologies.

Ingo Mutinelli, sales director at Elvey Security Technologies, says the outcome depends on the reason for the acquisition or merger. “Many of these acquisitions/mergers are complementary, meaning that one company buys the other for some critical or innovative IP that will markedly improve an existing product or put the buying company into a space that it has battled to make inroads into.

“This can have a positive effect for their partners and customers in that their available basket improves or a specific product improves. The other reason would be for efficiencies that can be realised by joining two similar businesses making them more profitable or efficient, which should drive prices down, making them more competitive and in turn grow their market share.

“Conversely something to look out for would be creating a monopolistic environment through acquisitions or mergers, which is not good for partners or customers for obvious reasons.”

Rob Anderson, MD of Rob Anderson Consulting.
Rob Anderson, MD of Rob Anderson Consulting.

Rob Anderson, MD of Rob Anderson Consulting echoes Mutinelli that consolidation and mergers are generally based on one of two reasons:

(a) Getting access to new technology and/or increasing market share, or

(b) Using the acquisition to remove their opposition in the marketplace.

Anderson says that, in both cases, there is a period of concern and a reconsideration of who should be used on your next project. “This leaves customers, SIs, installers etc. in a position of difficulty when trying to provide a long term support in such a fast changing marketplace.

“This should result in all parties being sure they are offering solutions that are open and unrestricted. There must be an easy path to change without ‘lock in’ to particular protocols and non-standard interfaces.”

Competition and efficiency

Mutinelli doesn’t think consolidation is a response to Chinese competition. “Mergers and buyouts have been around for centuries and while price is always a factor, I believe technology, service and competence drives many of the acquisitions and mergers we see today.”

Anderson expects the consolidation we’re seeing is partially due to new competition, but it is also due to the need for more robust business plans – trying to be a producer of analytic algorithms only is not likely to be profitable.

“There is also a need to reduce the number of layers of systems or companies between the manufacturer and end user. Too many is too costly. This reduction in the number of mark-ups is driving a change in the rest of the market and the result is good for clients.”

Holistic offering

It’s nothing new to say that the physical security market is moving away from point solutions, or silos as the IT word calls it, towards holistic solutions that aim to deliver everything the client requires. The drive to solutions instead of products is also a factor in the consolidation we are seeing.

Anderson splits the market between box movers and mass distribution on the one hand, and professional, large project solutions providers

on the other. Customers are inclined to opt for the one-stop shop, or box mover because costs are lower, however, there is often a lack of expertise available to extract full value from solutions. “The average client is convinced by the salesman that this solution is best. It remains debatable if this solution is well serviced.”

“Share of wallet and how much of it they can get drives how companies view their market,” notes Mutinelli. “Consolidation and a holistic offering is where manufacturers and suppliers are headed. Customers also want one port of call and they want simplicity, not complicated value chains from many different vendors.”

Irrespective of the marketing hype or slick sales people, Anderson advises customers to ensure they always work with good brands, from equipment through to installation.

“The most important rule is not to allow your project to use software and products that have non-standard protocols. The systems must be open and allow for multi-product connectivity.”

Customers still rule

The era of consolidation is not likely to end soon, there are already rumours of more big deals in the making. The one thing the end user can count on, however, is that their suppliers, no matter who they merge with or buy, still need customers to make a profit. As noted above, many of these deals are driven by the profit motive and this is good news for customers.

“If you’re not looking after your customer, you can close your doors,” says Mutinelli. “Whether you’re wheeling and dealing to acquire a customer base or organically growing one, entities will always try their best to look after their customers. Whether they get it right or not is the question, and if not then there are more than enough choices out there for clients to try something else.”


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