Commercial Integrator + Security Sales Jan/Feb 2024 - 57

Construction Spending Supports
Industrial Surveillance Demand
Continued spending on private nonresidential
construction is expected to be a
boon for sector participants in the commercial
end market. The value of private
nonresidential construction rose 22.4%
YOY in October 2023 to $694.8 billion,
according to the U.S. Census Bureau.3
Amid the increasing value of nonresidential
construction projects, construction
businesses have needed to fortify
jobsite security to mitigate expensive
delays. In particular, equipment theſt has
become a costly and disruptive challenge
for commercial construction projects.
This has supported the increased need for
sector services.
Every year, some $400 million in heavy
equipment machinery is stolen, with
mobile loaders making up 18%, according
to the National Equipment Registry.4
As of this writing, providers off ering construction
jobsite security products and services
have found healthy acquirer appetite.
Notably, ASSA ABLOY (OM:ASSA B), an
active buyer in the access control space,
acquired CrewSight last March for an
undisclosed sum.
CrewSight is a construction technology
business supporting both worksite and
access control security solutions managed
through a mobile application. The company
off ers security soſt ware, cameras
and analytics in partnership with Sensera
Systems to provide an accessible platform
for jobsite surveillance.
Package Theft Drives
Surveillance Product Demand
Residential demand for accessible security
solutions has led to increased adoption
of video surveillance products, driving
revenue for leading segment players. In
a recent survey, 17% of people in the U.S.
reported having a package stolen within
the past three months.
What's more, 44% of people in the
U.S. have had a package stolen at some
point in their life, according to Security.
org.5
has expanded the market for smart
home surveillance and Internet of
Things (IoT)-integrated products.
The pervasiveness of package theſt
The size of the global smart home
security camera market was valued at
$7.4 billion in 2022, and it's estimated to
reach $30.1 billion by 2030 through an
annual growth rate of 19.2%, according to
Research and Markets.6
To capitalize on elevated demand,
smart home security providers have
begun to off er all-in-one services that include
package detection, alarm detection,
motion-based notifi cations, emergency response
and 24/7 professional monitoring.
Bundled services have off ered sector
players recurring revenue opportunities
through subscription-based business
models. Notably, Arlo Technologies
(NYSE:ARLO) used its subscription-based
security service to achieve 59% YOY
growth in annual recurring revenue
(ARR), according to its Q3 2023 investor
presentation.7
Arlo's all-in-one security service also accounted
for 42% of its revenue mix in 2022,
according to the investor presentation.
Top players in the smart home security
space are expected to continue prioritizing
investments in the consumer end market.
Security Solutions M&A
Outperforms Prior-Year Period
The security solutions sector has seen
healthy M&A activity in recent years,
and 2023 was no exception. As of this
writing, there have been 175 transactions
announced or completed in the
space, as compared to 167 transactions
during the same period last year - a
4.8% increase YOY.
The security solutions sector has outpaced
the broader market, as M&A transactions
decreased 25.2% YOY through Q3,
according to Capstone's Q3 2023 Capital
Markets Update.
Although fi nancial buyers accounted
for the majority (53.1%) of transactions
through late 2023, private equity platform
transactions have only accounted for
5.1% of total deals.
An elevated interest rate environment
weakened private equity appetite for buyouts
across all markets through late 2023.
However, sponsors were sitting on over
$1.5 trillion in dry powder as of Q3 2023,
according to PitchBook.8
Limited partners (LPs) will eventually
expect this capital to be put to work, while
private equity fi rms had already increased
their equity contributions for platform
deals by 2.6% YOY to 52.6% through Q3
2023, according to GF Data.9
Although vast amounts of dry powder
might provide a more favorable environment
for platform acquisitions going
forward, sponsors are likely to continue
their pursuit of add-ons in the coming
year.
SECURITY SOLUTIONS M&A
MAINTAINS STRENGTH IN 2023
(number of transactions)
2019
2020
2021
2022
182
147
194
181
YTD 2022 167
YTD 2023 175
(YTD ENDS NOVEMBER 27.)
SOURCES: CAPITAL IQ, FACTSET,
PITCHBOOK AND CAPSTONE PARTNERS.
Fragmentation in the fi re and life safety
segment has made the space ripe for consolidation
by private equity-backed companies.
Buyers have targeted the fi re and life
safety segment at a high rate (38.9% of
total transactions), with many private
equity-backed businesses in the segment
pursuing tuck-in acquisitions to enhance
their market share.
Private equity add-on acquisitions
represented 48.0% of all deals in the
broader sector to date and 90.3% of all
acquisitions by fi nancial buyers. Of note,
Pye-Barker Fire & Safety, a portfolio
company of Atlas Partners, completed 13
tuck-in acquisitions as of late 2023 in the
fi re and life safety segment alone.
The company completed 23 tuck-in
acquisitions in the broader security
solutions sector through the same time
period - nine more acquisitions than it
had completed in full-year 2022.
Additionally, HGGC-backed Marmic Fire
Jan/Feb 2024 | Commercial Integrator+Security Sales & Integration
57

Commercial Integrator + Security Sales Jan/Feb 2024

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