Security & Defense
Market Insight
The physical security market continues to flourish. Indeed, the past 12 months have been characterized by a growing receptivity and readiness for companies with good critical mass and superior technology offerings.
The sweet spot in the market is at the intersection of the physical security and information technology worlds. Over the past year, we have found significant demand for companies whose products and services can be leveraged over IP-based networks.
To some extent, the market is still feeling the after-glow of the 2005 sale of Lenel, which delivers an IT-based software platform that integrates and manages a portfolio of physical security products. Cascadia advised Lenel, which sold for over $400 million, marking one of the most significant transactions in the physical security world this decade.
Trends to Watch
- Success in the physical security market over the next 12 months will depend on the supply of good quality companies with the necessary critical mass; right now, the feeling among investors is that there is a shortage of these businesses.
- But opportunities will exist in 2008, because enterprise spending on physical security technology is growing and potential acquirers understand, more than ever, the critical nature and value proposition of these products and services.
Financing the Future
To succeed in the physical security marketplace, investors must be satisfied in two clear-cut ways. First, that a company can rise above the noise and truly establish a position of strength in the market. This means revenues of more than $10 million and a solid track record with customers. Second, forward-thinking technology that seamlessly runs on IP-based networks is needed. This open-based platform is central to the future growth and development of the physical security industry.
The market's ongoing strength can be seen through a strong list of M&A deals in 2007, including Cisco's purchase of Broadware and Dell's recent $1.4 billion purchase of EqualLogic. In addition to strong M&A activity, the market has seen considerable revenue growth from an impressive list of incumbent players, including: Integrian, 3VR, DVTel, Dedicated Micros and Cross Match Technologies.