Commercial Integrator + Security Sales Jan/Feb 2024 - 58

SSI
ECONOMIC ANALYSIS: INSIGHTS ON M&A, STOCKS
& Safety completed six tuck-in acquisitions
in 2023 as of this writing, the second most
in the fire and life safety segment.
Valuation Outlook for Security
Solutions M&A Looks Bright
Valuations in the sector remained robust
YOY, despite there being a lull in the
broader M&A market. Purchase multiples
in the security solutions sector averaged
13.0x EV/EBITDA through late 2023, an
improvement from the YTD 2022 average
of 8.1x EV/EBITDA.
Comparatively, EBITDA multiples averaged
8.2x in the lower middle market ($10
to $100 million), 12.3x in the core middle
market ($100-$250 million) and 10.6x in the
upper middle market ($250 to $500 million)
across all industries through YTD Q3 2023,
according to Capstone's Q3 2023 Capital
Markets Update.
The median disclosed enterprise value
for M&A deals in the sector was $53.0
million, a 76.7% YOY increase from $30.0
million for YTD 2022. Additionally, valuations
through late 2023 outperformed the
median enterprise value in full year 2021, a
year that saw a high-valuation environment
across the majority of M&A markets.
Valuations for security solutions
transactions in the middle market also
remained robust through late 2023,
averaging $70.3 million, as compared to
$50.1 million in YTD 2022. As the macroeconomic
environment strengthens and
valuations continue to increase, 2024 may
be a banner year for M&A in security.
SECURITY SOLUTIONS M&A
SEES MEDIAN ENTERPRISE
VALUE GROWTH
(U.S. dollars in millions)
2020
2021
2022
YTD 2022
YTD 2023
$26.5
$49.8
$30.0
$30.0
$53.0
(YTD ENDS NOV. 27.)
SOURCES: CAPITAL IQ, FACTSET,
PITCHBOOK AND CAPSTONE PARTNERS.
Public market performance in 2023 among companies in the security industry
provides an optimistic outlook for growth in 2024.
Analyzing Security Industry Stocks
Public market performance in 2023 among
companies in the security industry provides
an optimistic outlook for growth in 2024.
Public companies in the cybersecurity sector
garnered especially healthy returns.
Total return for the Hack ETF amounted
to +33.6% through mid-December,
as compared to +20.9% for the S&P 500.
Capstone's Physical Security index underperformed
the S&P 500.
However, individual stocks among
companies in the physical security space
experienced robust growth. Below, we
highlight select equities in the physical
security and cybersecurity verticals.
Top Performers: Physical Security
■ Arlo Technologies (NYSE:ARLO)
- Home security system developer
Arlo Technologies saw its stock price
improve 168.4%, to $9.42 per share, as
of December 12, 2023. The company
improved its stock price by 27.2% from
May 11 to May 12, to $8.97 per share,
following its Q1 2023 earnings release.
Arlo reported $111 million in revenue
for Q1, which was above the high end of
the company's guidance, according to
an earnings transcript.10
■ Alarm.com (Nasdaq:ALRM) - Alarm
monitoring service provider Alarm.
com experienced an 18.7% increase in
58 Commercial Integrator+Security Sales & Integration | Jan/Feb 2024
its stock price through Dec. 12, 2023,
to $57.93 per share. The company
increased its last-twelve-month (LTM)
revenue by 4.1%. It reported strong Q2
2023 earnings, including a 46.3% YOY
increase in net income for the quarter
to $15.8 million, according to an earnings
call.11
9, Alarm.com improved its stock price
by 24.1%, seeing a rise to $61.05 per
share on Aug. 10.
Laggards: Physical Security
■ SoundThinking (Nasdaq:SSTI) - Public
safety solutions provider SoundThinking
saw its stock price decrease by
26.5% (to $24.88 per share) as of Dec.
12, 2023. The company experienced
turbulence in 2023 due to its controversial
contract with the city of Chicago.
Criticism of the company's gunshot
detection software sent its stock price
down 22.3%, to $29.41 per share, on
April 5, 2023. Additionally, SoundThinking
reported $15.2 million in operating
expenses in Q3 2023, according to an
earnings release.12
This accounted for
64% of revenue in the quarter, as compared
to 33% in the prior-year period.
■ ADT (NYSE:ADT) - The stock price for
home security provider ADT decreased
29.1% through Dec. 12, 2023. The stock
dropped 14.3%, to $5.71 per share, folFollowing
the release on Aug.
VIKS_JIN/STOCK.ADOBE.COM
http://www.Alarm.com http://www.Alarm.com

Commercial Integrator + Security Sales Jan/Feb 2024

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