Long-Term Growth Forecast for Security Solutions Companies: Capstone Headwaters Report
The security industry should expect a strong deal making environment in 2021, says Tom McConnell, managing director, Capstone Headwaters.
BOSTON — Capstone Headwaters has released its Security Solutions December Update, reporting that the industry has displayed defensibility in residential markets, while experiencing softness in commercial applications as enterprises delayed new security projects in the second quarter.
In addition, emphasis on public and employee safety, accelerated by the coronavirus pandemic, has promoted demand for advanced systems that allow real-time visibility across facilities. Smart technologies have advanced security applications as end users demand automated, real-time surveillance and access control. As a result, leading players have continued to invest organically and inorganically to capitalize on long-term growth trends.
“Recent deal activity in the industry is representative of pent up demand from both buyers and sellers,” says Todd McMahon, head of investment banking, Capstone Headwaters. “Recent inquiries have picked up significantly which bodes well for a strong 2021 for the sector. However increased deal competition will only continue to highlight the difference between top tier opportunities and secondary competition. Sellers would be well advised to get proactive regarding their transaction preparations.”
The security industry should expect a strong deal making environment in 2021, comments Tom McConnell, managing director, Capstone Headwaters.
“Widespread vaccinations should enable workers to return to the office and foster heightened demand for increased system deployments. Customers will seek the benefits from continued improvements in IoT technology features and functionality,” McConnell says. “Supportive capital markets, aggressive strategic buyers, and omni-present private equity will all contribute to increases in the volume and value of M&A transactions.”
As the pandemic swept across the globe, strategic and private equity buyers focused on internal risk mitigation strategies to assess operational and liquidity concerns. In addition, sellers have largely delayed exits as owners assess valuation impacts and look for enhanced visibility into capital markets.
However, transaction activity rebounded in Q3, rising 67% quarter-over-quarter as buyers selectively seek quality assets that have displayed defensibility through the COVID-19 downturn. Many strategics have completed deals in the post-COVID environment, seeking to bolster its security technology to augment existing equipment offerings and further align with long-term industry trends.
Despite a positive recovery in Q3 activity, near-term challenges remain with concerns about a resurgence in COVID-19 infections. As vaccine and political uncertainties ease, Capstone Headwaters believes 2021 will yield a window of opportunity for sellers, as private equity buyers remain flush with capital and strategic buyers become less concerned with their own liquidity.
The complete report can be downloaded here.
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