Global Physical Security Products Sales Topped $28B in 2016, Report Says
A new research study by Memoori provides market research and global investment analysis for the access control, intrusion alarms and video surveillance sectors.
LONDON – The total value of world production of physical security products at factory gate prices in 2016 was $28.44 billion, an increase of 4.5% compared to the previous year, according to a new report by research firm Memoori, based here.
Memoori’s “2016 World Survey of the Physical Security Industry” offers detailed market sizing and analysis of three major product sectors – access control, intrusion/perimeter protection and video surveillance. The report is said to analyze the technological and commercial changes that are impacting the business and the role that mergers & acquisitions, investment and alliance is playing in changing the competitive landscape.
In the last five years the market has grown by a compound annual growth rate (CAGR) of 8.2%, experiencing a significant fall in growth during the previous two years. The North American and European markets have continued to lose market share to Asia and particularly China. This trend is forecast to continue to the end of the decade.
Margin Erosion Continues to Thwart Revenues
Western manufacturers of video surveillance products have failed to establish a solid business base and significant share in China, while two Chinese manufacturers alone – Hikvision and Dahua – have sales of more than $5 billion between them. Both companies now have the kind of scale that allows them to reduce prices to the levels that most western manufacturers can’t compete against, according to Memoori.
Memoori forecasts a CAGR of 5.65% during the 5-year period from 2016 to 2021. The research firm contends that’s not particularly optimistic considering the market managed to grow by a CAGR of 7.83% during an unstable period from the end of 2010 to today. While growth in volume terms will exceed 10%, Memoori says, there is little chance of sales revenues achieving much more than half of this while the major Chinese companies continue reducing their prices in order to boost volume.
In the short term, to create sufficient scale to reduce manufacturing cost and thwart the policy of fighting on price alone, the only solution is merger and acquisition between western-based companies, Memoori states.
As the report shows, acclimatizing to a rapidly changing business environment, reshaped by fast moving technology and new competitors from outside the traditional business, will require clear vision of the present and future business opportunities and skillful implementation of appropriate strategies.
In 2015, M&A spending amounted to $5.7 billion, but this was still less than the $6.2 billion realized 10 years previous, according to Memoori. Nevertheless it was an important year for M&A given the world’s No. 1 manufacturer of IP network cameras, Axis Communications, was acquired for $2.8 billion by Canon, along with the merger of Kaba Holdings and Dorma Holdings. These two mega deals accounted for more than 80% of the total value of acquisitions in 2015.
In September, Johnson Control and Tyco Int’l merged and created a $30 billion revenue company. Technically it is a merger with the new stock being proportionally based on the market valuation of each company at the time of the announcement. However, in practice it is an acquisition with Johnson Controls taking over Tyco, a registered company in Ireland in what is called an inversion deal. Tyco is one of the world’s leading suppliers of physical security and fire/life-safety equipment and its market valuation at the time of the announcement was $16.5 billion.
The Johnson Controls/Tyco Int’l merger is the biggest security industry deal recorded since Memoori began tracking M&A in 2000. It has, of course, distorted the whole picture of M&A in 2016. The total value of deals in 2016 was $19.73 billion making it almost 3.5x larger than 2015. However, the number of deals in 2016 was 27 compared with 38 in 2015, according to Memoori.
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