2024 marked another solid year for growth and transaction activity in the security industry with the total addressable market increasing by 6.8% from $117.43 billion to $125.39 billion (Endnote 1).
Private equity and capital markets investors more broadly continue to show strong interest in the sector, as technology enables the transformation of legacy businesses from project-based operations to recurring-revenue-driven services models.
The profound impact of the security industry’s digital transformation is creating new opportunities for sector participants across the value chain.
Image courtesy of Capstone Partners
Economic Backdrop on the Security Industry
A generally strong macroeconomic environment supports positive performance in the security industry. According to Huntington chief economist Olu Omodunbi, “The U.S. economy has had a remarkable year and recession fears have diminished.
Economic growth in 2024 is on track to exceed consensus expectations.” (Endnote 2)
Huntington chief investment officer John Augustine notes that consumer spending and low unemployment underly these positive results despite headwinds from higher mortgage rates, high home prices and a shortage of housing inventory.
This generally positive economic environment has translated into exceptional performance in the broader stock market. On a year-to-date basis through Dec. 20, 2024, the S&P 500 was up an extraordinary 25.5%. U.S. stocks have enjoyed a boost from two areas: (i) the Magnificent 7, which no other country has, and (ii) earnings per share growth that is well above average (Endnote 3).
Sales Growth Among Service Players Highlights Demand
Consistent revenue growth among leading public companies has catalyzed significant confidence in the health of the security solutions sector. Publicly traded market participants have begun transitioning to primarily service-based protection offerings to sustain long-term growth with annual recurring revenue (ARR).
The shift toward a one-stop-shop business model for integrated physical security has complemented current consumer spending habits, which have tended to favor subscription-based services over one-off retail purchases.
This sentiment has been emphasized by the 86% of U.S. consumers who are active subscribers to at least one service, according to The Subscription Trade Association (SUBTA) (Endnote 4).
For example, Arlo Technologies (NYSE: ARLO), an integrated security system platform provider, posted year to date revenue for the nine months ending September 2024 of $389 million versus $356 million for the same period last year. Arlo has attributed its growth to direct subscription sales, according to an investor presentation (Endnote 5).
Other leading public companies in the sector with similar models reported strong revenue growth in 2024.
Motorola Solutions (NYSE:MSI) generated a 9.5% increase for the nine months ending September 2024 over the same period in 2023. Alarm.com (Nasdaq: ALRM) increased revenues by 6.5%, from $655 million to $698 million, for the nine-month periods ending September 2023 and 2024, respectively, according to regulatory filings (Endnote 6 and Endnote 7).
Active buyers in the space have capitalized on strong levels of sector demand by making large accretive acquisitions to improve equity value.
Of note, Honeywell (Nasdaq: HON), an industrial conglomerate, closed on the acquisition of Carrier’s (NYSE: CARR) Global Access Solutions business in June 2024, for an enterprise value of $4.9 billion, with the stated purposes of positioning Honeywell “as a leading provider of security solutions for the digital age with opportunities for accelerated innovation in the fast-growing, cloud-based services and solutions space.” (Endnote 8).
The acquisition also strengthens Honeywell’s Building Automation business segment with the addition of the LenelS2, Onity and Supra brands. Following the initial Dec. 8, 2023, announcement of the acquisition, Honeywell’s share price dropped 1.6% to $194.61 per share. (This is typical of when a public company announces a deal of this size.)
However, Honeywell’s share price then climbed by approximately 20.2% to reach $233.91 per share on Nov. 12, 2024. Because share price performance is likely to be a priority for public company buyers, sector players with strong margin profiles are expected to receive M&A interest.
Consolidation Strategies Continue in Security Industry
Merger and acquisition volume in the security solutions sector has reached 186 transactions through Dec. 20, 2024, essentially putting it on par with 2023’s year-end tally of 190 transactions (Endnote 9).
As with other industries, a lack of lack of sponsor-led platform transaction activity has subdued overall deal flow. However, sponsor-backed strategic buyers have continued to deploy aggressive roll-up acquisition strategies to consolidate the regionally fragmented Fire & Life Safety market.
Atlas Partners-backed Pye-Barker Fire & Life Safety has continued its acquisitive streak through YTD with a remarkable 34 deals (Endnote 10), while Rapid Safety & Security, with backing from Concentric Equity Partners, has completed five acquisitions YTD after making one acquisition in 2023 (Endnote 11).
Convergint, backed by Harvest Partners and Leonard Green, furthered its growth through acquisition strategy with three successful deals in 2024 YTD. The roll-up strategies seen in 2024 — and since 2019 — highlight the scalable nature of segment players.
Although valuation information remains sparse in the private company-laden security solutions sector, businesses in the space have attracted robust middle market purchase prices.
Notably, Vitaprotech announced the acquisition of Identiv’s (Nasdaq: INVE) Physical Security business in April for an enterprise value of $145 million. Additionally, Axon (Nasdaq: AXON) acquired Fusus, an alarm monitoring platform for law enforcement agencies, in February for an enterprise value of $300 million.
Security systems integrators have received robust M&A attention across the sector’s five main segments through YTD.
In the access control segment, Linx Partners acquired Black Creek Integrated Systems (May, undisclosed), a systems integrator for correctional facilities. ADT Commercial acquired video surveillance integrator, DIGIOP, in March for an undisclosed sum.
360 Protective Solutions’ merger with WSO Worldwide Options (July, undisclosed) stood out in the uniform guard segment due to the target company’s capabilities integrating physical security details with precise 24-hour video surveillance.
Overall, the fire and life safety segment has accounted for approximately 39% of all security industry transaction activity year to date (Endnote 12).
In another marquee deal highlighting the attractiveness of the monitoring segment of the industry, leading connected safety and monitoring solution provider Becklar received an investment from Graham Partners with both management and existing private equity partner BV Investment Partners rolling substantial ownership stakes (Endnote 13).
Among the broader investment banking and deal making community, optimism is running high for 2025 with prognosticators noting pent up transaction demand among both buyers and sellers after lackluster activity levels in 2023 and 2024.
Top Security Industry Performers
Motorola (NYSE: MSI): Motorola’s stock price has outperformed the market with a dramatic increase of more than 60% from $311.64 on Jan. 2, 2024, to $504.60 on Nov. 8, 2024, before settling back to $470.25 as of Dec. 20. Motorola’s stock performance is tied to its impressive financial performance across business units.
Johnson Controls (NYSE: JCI): JCI’s stock improved from $56.04 on Jan. 2 to $85.16 on Nov. 12, representing an increase of 52%, before settling back to $80.64 on Dec. 20.
According to JCI CEO George Oliver, “[JCI] is a faster-growing, more profitable, simpler company…. Our differentiated solutions to enhance efficiency and sustainability in commercial buildings continue to resonate with our customers.” (Endnote 14)
Dormakaba (SWX: DOKA): Switzerland-based access and security solution provider Dormakaba enjoyed an impressive rise of more than 50% in its stock price from $503 at the start of the year to $772 in early December, before settling back to $653 as of Dec. 20.
Dormakaba’s CEO comments, “In 2023/24, we have made good progress on our strategy execution… This led to a strong financial performance with strong organic growth and a significant margin expansion.” (Endnote 15)
Securitas (OM: SECU B): Security service provider Securitas enjoyed a nice move in its stock this year, as it climbed approximately 40% from $9.11 on Jan. 2 to $12.81 as of Dec. 9, prior to a subsequent decline to $12.46 as of Dec. 20. Strengths in the company’s technology business coupled with higher margins supported the company’s higher valuation.
Allegion (NYSE: ALLE): Allegion’s stock price climbed from $124.25 on Jan. 2, 2024, to a high of $153.36 on Oct. 18, representing an increase of 23.4% as ALLE reported third-quarter 2024 earnings of $2.16 per share, beating the $1.98 consensus of the analysts covering the company (Endnote 16). Subsequently, as of Dec. 20, the stock dropped back to $132.18.
ASSA ABLOY: Access control solution provider Assa Abloy enjoyed an 18.2% rise in its stock during 2024 with an improvement from $26.41 on Jan. 2 to $31.23 on Dec. 9 before dropping back to $28.64 as of Dec. 20. Through early December, the company continued its inorganic growth strategy with 12 acquisitions for the year through early December (Endnote 17).
Volatile Performers
In the category of most volatile across the security industry, Alarm.com (Nasdaq: ALRM) deserves mention, with dramatic moves in its 2024 stock price. Starting the year at $63.41, ALRM reached a high of $75.69 on Feb. 29 before falling to a low of $52.26 and finally recovering to $68.27 by Dec. 9.
For the 12 months ending Sept. 30, 2024, revenues versus the same period ending Sept. 30, 2023, increased to $923.8 million, while EBITDA improved to $121.4 million. That is as compared to revenues of $881.7 million and EBITDA of $101.2 million for the 12 months ending Sept. 30, 2023.
Napco (Nasdaq: NSSC) has a stock price that started the year at $33.71, reached a high of $58 on Aug. 19 and then fell to $34.23 on Sept. 6. Despite the year’s ups and downs, Napco was nevertheless trading at 6.5x revenue and 21.1x EBITDA as of Dec. 20.
Evolv (Nasdaq: EVLV). Evolv stock declined from $4.78 on Jan. 2 to a low of $2.37 in early November before rebounding to $4.37 as of Dec. 9. Effective Dec. 16, Evolv appointed John Kedzierski as the company’s new CEO (Endnote 18). The stock closed at $3.79 on Dec. 20.
Knightscope (Nasdaq: KSCP) stock declined from $29.62 at the beginning of the year to a low of $5.17 in September before rebounding to $27.76 on Nov. 11 and then dropping back to $13.35 as of Dec. 20.
For the 12 months ending Sept. 30, 2024, revenues totaled $11.005 million representing a decline from revenues of $12.797 for the 12 months ending Sept. 30, 2023.
On Nov. 21, 2024, KSCP announced the pricing of a public offering of 1,210,000 shares of its Class A common stock at a public offering price of $10 per share with gross proceeds from the offering of $12.1 million (Endnote 19).
Endnotes
- The Business Research Company, Physical Security Global Market Report, March 2024).
- US Economic Expansion Expected to Continue Through 2025, Huntington Private Bank, November 2024).
- Huntington Private Bank, Review and Outlook, 12/6/2024.
- Subscribers Trade Association, “2024 State of the Subscription Commerce Industry Outlook,” https://21921350.fs1.hubspotusercontent-na1.net/hubfs/21921350/SubSummit_AnnualReport2024.pdf?__hstc=200453361.f87eff445df2f4a84c4888cabc6d7e13.1721064542375.1721064542375.1721064542375.1&__hssc=200453361.1.1721064542375&__hsfp=3523199817, accessed July 8, 2024.
- Arlo Technologies, “Arlo Investor Presentation Q1 2024,” https://s22.q4cdn.com/363130056/files/doc_financials/2024/q1/Arlo-Investor-Presentation-Q1-2024-Final.pdf, accessed July 8, 2024.
- Motorola Solutions, “Form 10-Q,” www.motorolasolutions.com/content/dam/msi/investors/doc_financials/2024/q1/msi_q1_2024_10-q_final.pdf, accessed July 8, 2024.
- Alarm.com Holdings, “Form 10-Q,” https://d18rn0p25nwr6d.cloudfront.net/CIK-0001459200/2aa0c5a8-cd9f-4525-958e-89500902cb52.pdf, accessed July 8, 2024.
- Honeywell International, “Honeywell Completes Acquisition of Carrier’s Global Access Solutions Business and Updates 2024 Outlook,” www.honeywell.com/us/en/press/2024/06/honeywell-completes-acquisition-of-carrier-s-global-access-solutions-business-and-updates-2024-outlook, accessed July 8, 2024.
- Capital IQ Transaction Screening Report, December 20, 2024.
- S&P Capital IQ.
- S&P Capital IQ.
- S&P Capital IQ.
- PR Newswire, December 10, 2024 “Graham Partners Joins BV Investment Partners as Investor in Becklar.”
- Security Systems News, November 8, 2024, “Johnson Controls Builds ‘Momentum’ Heading into Fiscal 2025.”
- Dormakaba Media Release, September 3, 2024 “Strong organic growth and margin expansion in 2023/24 – Strategy reiterated and enhanced.”
- CNBC, Allegion PLC, accessed December 21, 2024.
- Capital IQ Transaction Screening Report, December 20, 2024.
- Evolv Press Release, December 9, 2024, “Evolv Technology Appoints John Kedzierski as Chief Executive Officer, President and Director.”
- Business Wire, November 21, 2024, “Knightscope Announces Pricing of $12.1 Million Public Offering.”
Tom McConnell is a managing director at Capstone Partners.
