LEADING SECURITY SOLUTIONS COMPANIES POSITION THEMSELVES FOR LONG-TERM GROWTH - SECURITY SOLUTIONS INDUSTRY | DECEMBER 2020
←
→
Page content transcription
If your browser does not render page correctly, please read the page content below
LEADING SECURITY SOLUTIONS COMPANIES
POSITION THEMSELVES FOR LONG-TERM GROWTH
SECURITY SOLUTIONS INDUSTRY | DECEMBER 2020
3
Security Solutions
Leading Companies Position Themselves for Long-term Growth
TABLE OF CONTENTS M&A OUTLOOK
M&A Outlook Merger and acquisition (M&A) volume across the broader economy
experienced a significant rebound in Q3, rising 28.1% quarter-over-quarter,
Trends & Drivers indicative of a recovering deal environment. Despite a positive recovery in Q3
M&A Overview activity, near-term challenges remain with concerns about a resurgence in
Notable Transactions COVID-19 infections. However, robust vaccine efficacy rates and the
seasonality of the virus have driven estimates that indicate herd immunity
Select Transactions occurring in the second half of 2021, according to McKinsey.1 As vaccine and
Public Company Highlights political uncertainties ease, Capstone Headwaters believes 2021 will yield a
Public Company Data window of opportunity for sellers, as private equity buyers remain flush with
capital and strategic buyers become less concerned with their own liquidity.
Report Contributors
Firm Track Record The Security Solutions industry has displayed defensibility in Residential
markets, while experiencing softness in Commercial applications as enterprises
delayed new security projects in Q2. However, commercial activity modestly
rebounded in Q3. In addition, emphasis on public and employee safety,
accelerated by the 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.
CONTACTS Resilience in the industry has been manifested within each segment,
rebounding and within 20% of their 52-week high EBITDA multiples. As
Todd McMahon demand pressures ease, the industry is poised to continue its upward
Head of Investment Banking trajectory. As of November 10th, the Diversified IT Services & Integration
617-619-3334 (+91.6%), Access Control (+49.5%), Alarm Monitoring (+33.1%), and Video
tmcmahon@capstoneheadwaters.com Surveillance (+16.4%) segments have seen robust growth from March lows.
Public Company EBITDA Mutliples
Tom McConnell
Alarm Monitoring Diversified IT Services & Integration
Managing Director S&P 500 Video Surveillance
303-951-7125 Access Control
tmcconnell@capstoneheadwaters.com 20x March 11: World Health
Organization declares
16x COVID-19 a pandemic
EV/EBITDA
12x
8x
4x
0x
11/19 01/20 03/20 05/20 07/20 09/20 11/20
Indexes includes: ASCN, BEAT, BNFT, CSLT, CERN, CHNG, EVH, HSTM, INOV,
MDRX, OMCL, ONEM, PINC, TDOC, VCRA, IQV
Source: Capital IQ and Capstone Research
2
Security Solutions | December 2020
TRENDS & DRIVERS
COVID-19 Impacts: The virus has significantly disrupted Notably, ADT has released its Blue smart security devices,
commercial security demand, as enterprises delayed catering toward residential DIY customers. In addition,
projects to eliminate new costs and preserve capital. ADT entered into a long-term commercial agreement with
However, ADT (NYSE:ADT) is beginning to see an uptick in Google (Nasdaq:GOOG), highlighted on page eight, to
commercial sales which have experienced a modest create next generation smart home products and
sequential increase compared to Q2, according to its solutions. The partnership highlights traditional service
recent earnings call.2 Meanwhile, residential installers, providers advancing investment into the smart home and
service, and equipment providers have outperformed remote access and monitoring space.
peers, especially for those with service and monitoring
contracts that generate defensible recurring monthly
Video Analytics Projected Market Growth
revenue (RMR). Lockdown measures and social
distancing guidance have forced a significant increase in
time spent at home. As a result, many residential users $11.7 billion
have placed heightened emphasis on home security
systems, evidenced by Allegion’s (NYSE:ALLE) double digit $4.9 billion
growth in its Residential segment in Q3.3
IP Video Surveillance and VSaaS Market: With recent
advancements in internet protocol (IP) video surveillance
and video surveillance-as-a-service (VSaaS), which is
projected to grow at a 16% compound annual growth 2020 2025
rate to reach $4.7 billion by 2025 (Market and Markets),4 Source: Market and Markets
end users can effectively survey facilities much more
efficiently while benefiting from a reduction in human Video Analytics: The Video Analytics market is projected
capital security costs. Trends in surveillance systems have to reach $4.9 billion in 2020, with a growth rate of 19% to
shifted from proprietary, higher cost systems to IP based reach $11.7 billion by 2025, according to Market and
systems, which utilize common protocols to transfer data, Markets.5 Historically, video surveillance has been human
providing scalability and flexibility to existing networks in capital intensive, and heavily inefficient, with less than 1%
addition to increasing storage capacity via cloud- of all video surveillance footage viewed, according to
utilization. The convergence of operational technology ELERTS.6 As security systems across Transportation,
(OT) and information technology (IT) has led to an Public Safety, as well as new contract tracing systems
emergence of IP security access control and surveillance permeate our cities and facilities, demand for analytics
equipment, providing new opportunities for technology- platforms as well as equipment that supports their use is
focused security operators. As demand for security mission critical to support real-time threat detection.
analytics presents new smart platforms and equipment, Notably, Motorola has utilized M&A to bolster its IP
service providers must invest, organically and surveillance and video management offerings, acquiring
inorganically, to fulfill the shifted demand landscape. three companies in 2020 (highlighted on page five).
Shifting Trends in IP Surveillance Systems
Analog Surveillance Video Surveillance IP Surveillance
Analog surveillance has certain After analog surveillance, digital era To eliminate these disadvantages, software
disadvantages such as higher produced some advantages that reduce designers used Internet Protocol as a
complexity in cabling, limited number system complexity with the help of fiber platform to transfer data. Use of IP delivers
of network devices, and high optic cable. Still the video surveillance the scalability and flexibility to existing
installation and operational costs. system is not scalable/flexible, and the networks. Additionally, the use of cloud-
cost of installation of the system is high. based solutions increases storage capacity.
Source: Capstone Research
3
Security Solutions | December 2020
M&A OVERVIEW
Merger and acquisition (M&A) activity through year-to- Strategic buyers have accounted for 63.4% of total
date (YTD) has trailed 2019 levels by ~30%, driven by transaction volume. Capstone’s conversations with
decreased deal activity in Q2. In Q1, there were 37 deals leading strategics have indicated that many major players
in the Security Solutions industry, modestly lower than are opportunistically looking to pursue acquisitions as the
historic Q1 levels while Q2 activity fell substantially with essential industry has maintained relatively steady cash
only 18 deals. As the pandemic swept across the globe, flow and liquidity positions. However, many private
strategic and private equity buyers focused on internal risk business owners considering a sale of their companies are
mitigation strategies to assess operational and liquidity placing those plans on hold until financial performance
concerns. In addition, sellers have largely delayed exits as recovers and valuation expectations better align with
owners assess valuation impacts and look for enhanced strategic or financial buyers. Notably, ADT (NYSE:ADT)
visibility into capital markets. However, transaction activity has indicated it continues to seek acquisitions in the
rebounded in Q3, rising 67% quarter-over-quarter as Commercial market. With a historic playbook of tuck-in
buyers selectively seek quality assets that have displayed acquisitions, amounting to 10 deals since 2018, the
defensibility through the COVID-19 downturn. company has only completed two deals in 2020 – both
occurring pre-COVID. However, many strategics have
Private equity (PE) buyers accounted for 36.6% of completed deals in the post-COVID environment, seeking
transaction volume, consistent with levels seen in 2019. to bolster its security technology to augment existing
Notably, add-on activity composed 26.0% of deal volume equipment offerings and further align with long-term
while platform investments accounted for 10.6%. The industry trends. Notably, Johnson Controls acquired
flight toward add-on activity, as opposed to large buyouts, home security and control systems provider Qolsys,
has been driven by scarcity of debt availability, as leverage reflecting the heightened demand for ease of integration
levels declined 0.25x to 1.25x while pricing increased ~75 remote home surveillance and access control. In addition,
to 125 basis point increases, according to Capstone Motorola (NYSE:MSI) has bolstered its security offerings
Headwaters' Debt Advisory Group. The challenging, albeit with acquisitions in August of Callyo, a mobile technology
improving, lending environment has forced PE buyers to for law enforcement body cameras, and Pelco ($110
put platform investments on hold in favor of smaller, million), a manufacturer of professional video surveillance
strategic tuck ins to stimulate growth in existing platform and security system products and technologies
investments. However, as leverage and pricing dynamics (highlighted on next page).
continue to recover, PE buyers are likely to return to
buyout activity, supported by the war chest of deployable As the market stabilizes and projected performance
capital amounting to $1.2 trillion in 2019 (Pitchbook).7 becomes more visible, Capstone expects a robust rebound
in M&A activity within the Security Solutions market.
Annual Transaction Volume Year-To-Date Buyer Breakdown
250
200 182 STRATEGIC 26.0%
Number of Transactions
143 149 Private
135 40.3%
150 126 Public
101 104 FINANCIAL
100 86 10.6%
Platform
Add-on
50
23.1%
0
2014 2015 2016 2017 2018 2019 YTD YTD
2019 2020 Note: Year-to-date ended November 10
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
4
Security Solutions | December 2020
NOTABLE TRANSACTIONS
Several notable transactions have been announced or completed in the industry in 2020. Select transactions are outlined below,
followed by a more comprehensive list on the following pages.
Motorola Acquires Three Security Companies in 2020
Callyo 2009 Corp. (August, Undisclosed) – a provider of cloud-based software-as-a-service
applications serving thousands of public safety customers across North America, was acquired by
Acquires
Motorola in August for an undisclosed sum.8 Callyo serves law enforcement customers, providing two
application suites: 10-21, an application which simplifies communication between first responders and
citizens, and Callyo, which offers investigative tools to enhance digital evidence collection processes.
The deal strengthens Motorola’s existing command center software suite, adding a leading critical
mobile technology that enables seamless information flow from the field to the command center.
Pelco, Inc. (August, $110 Million) – a global provider of end-to-end video security solutions, has
been acquired by Motorola for $110 million in August.9 The company was sold by Transom Capital
Group, who acquired the business in March 2019 from Schneider Electric (ENXTPA:SU). Pelco designs,
develops, and distributes IP video security cameras and video management system software. Its end-
to-end solutions include a video management platform, VideoXpert, as well as physical security
cameras such as fixed, pan tilt and zoom, panoramic, explosion-proof, thermal, and fortified
equipment. The company also provides field services, remote services, and training solutions. In
recent years, Motorola has expanded and enhanced its video surveillance offerings, with the
acquisitions of Avigilon in April 2018 and WatchGuard in July 2019. The acquisition of Pelco further
expands its offerings, bolstering next-generation security solutions which continue to serve a critical
role in enabling safer cities and securing enterprises. Motorola plans to enhance Pelco’s product
portfolio, leveraging Motorola’s industry leading video hardware and analytics technology.
IndigoVision (June, Undisclosed) – a provider of end-to-end video security solutions, has been
acquired by Motorola in June for undisclosed terms. Based in Edinburgh, Scotland, IndigoVision offers
cameras, video management software, encoders, and storage devices. The deal showcases Motorola’s
continued growth and investment in next generation video security offerings. IndigoVision’s product
suite will complement Motorola’s existing video portfolio of fixed cameras, in-car and body-worn
cameras, and advanced analytics and software. “We share IndigoVision’s commitment to providing
end-to-end video security solutions that enhance safety, security and efficiency. IndigoVision’s end-to-
end offering, global presence and customer base will complement our existing and growing presence
in video security and analytics,” commented John Kedzierski, Senior Vice President of Motorola’s Video
Security and Analytics division, in a press release.10
ACRE, LLC Acquires Razberi Technologies, Inc.
(November, Undisclosed)
ACRE, backed by Security industry-focused private equity firm Egis Capital, has acquired Razberi
Technologies in November for an undisclosed sum.11 The deal marks ACRE’s third transaction since 2018,
following the acquisitions of RS2 (May 2019, undisclosed) and Open Options (December 2018,
undisclosed). ACRE provides state-of-the-art security systems including access control on-premises and
cloud-based, intrusion detection, and communications network solutions. Razberi will join ComNet, a
Acquires
subsidiary of ACRE.
Founded in 2011, Razberi produces a portfolio of enterprise security solutions such as intelligent video
surveillance server appliances, automated cybersecurity software, and video health monitoring software.
Its product suite integrates with leading third-party video management software as well as IP cameras to
enable enterprises to securely manage physical and network security equipment. Razberi complements
ACRE’s existing offerings across its video and access control brands.
5
Security Solutions | December 2020
SELECT TRANSACTIONS
Enterprise EV / LTM
Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA
Provides industry leading security orchestration,
11/05/20 StratoZen ConnectWise CF CF CF
automation, and response platform.
Razberi Manufactures network video solutions for professional
11/05/20 ACRE, LLC - - -
Technologies, Inc. video surveillance and security applications.
AE Industrial Provides customized software solutions and security
11/04/20 Linkware/PRE and travel consulting services. - - -
Partners
A&D Fire The Hiller
11/02/20 Offers fire protection services. - - -
Sprinklers Companies
Safe Environmental
10/21/20 Allied Universal Provides private security services. - - -
Business Solutions
Assets of White’s
10/20/20 Garrett Electronics Produces security metal detectors. - - -
Electronics
Martin Security Per Mar Security Offers home security, business security, alarm systems,
10/14/20 and fire alarm services. - - -
Systems and Research
Pye-Barker Fire Provides inspection and testing services for fire alarm,
10/09/20 Mitec Controls - - -
& Safety access control, and video monitoring systems.
FrontPoint Security
10/08/20 Twin Point Capital Offers do-it-yourself home security systems. - - -
Solutions
10/06/20 Connectivity Point Distributes and installs integrated security solutions. - - -
Danetech
Design & Installation
Platinum Protection AEGIS Security &
10/02/20 Offers physical security and investigative solutions. - - -
Group Investigations
Assets of Comprises the electronic security businesses in
09/28/20 Securitas Germany, Portugal, Switzerland, Singapore, and India. $64.0 0.8x -
STANLEY
Skynet Minuteman Security Offers security products and services for access
09/17/20 control, video surveillance, and alarm systems. - - -
Integrations Technologies
SecureWorks
09/09/20 Delve Laboratories Develops internet of things (IoT) security solutions. $15.5 - -
(Nasdaq:SCWX)
Motorola Solutions Provides mobile technology tools for law enforcement
08/31/20 Callyo 2009 - - -
(NYSE:MSI) agencies, such as body camera applications.
Offers customized security and IT infrastructure
08/31/20 Service Works Allied Universal integrator services in northeast Tri-state area. - - -
Advanced Fire; Provides commercial fire and life safety consultancy
08/27/20 Certasite - - -
Approved Fire services and installs fire alarm systems.
Price’s Alarm TELUS Offers security alarm systems and monitoring services
08/27/20 for commercial and residential clients. - - -
Systems (TSX:T)
Johnson Controls Provides home security and control systems
08/04/20 Qolsys including life safety systems and remote cameras. - - -
(NYSE:JCI)
Motorola Solutions Comprises Schneider Electric’s professional video
08/03/20 Pelco $110.0 0.7x -
(NYSE:MSI) surveillance and security system manufacturing division.
Phoenix Systems
07/20/20 Allied Universal Provides full-service security systems integration. - - -
& Service
Arena Offers security and automation solutions for residential
07/10/20 Vio Security - - -
Investors and commercial applications.
Access Control Brixey & Meyer Distributes residential and commercial access control
07/09/20 systems and provides integration services. - - -
Systems Capital
Note: CF = confidential; highlighted deals are Capstone’s transactions
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
6
Security Solutions | December 2020
SELECT TRANSACTIONS
Enterprise EV / LTM
Date Target Acquirer Target Business Description Value (mm) Revenue EBITDA
Provides security integration to Education, Government,
06/30/20 Advantech Cook & Boardman - - -
Commercial, and Healthcare markets.
Internal Security Patrol Protect Engages in premium on-site security services serving
05/31/20 - - -
Associates Secure public sector clients.
Provides security and staffing services for airports,
05/23/20 G2 Secure Staff Tenex Capital sports events, and other events. - - -
Approved Safety
05/22/20 CertaSite Offers security system services. - - -
and Security
Revolutionary
04/07/20 Accenture Provides cyber security solutions for IT and OT systems. CF CF CF
Security
Midwest Alarm Offers security solutions including fire alarms and
04/03/20 GT Fire & Security access controls for residential and commercial clients. - - -
Services
Fulcrum Fujitsu Frontech Manufactures and integrates biometric identification
04/02/20 - - -
Biometrics North America systems and devices for commercial, civil, and military.
Develops a remote access control application that
03/23/20 Doorport PointCentral connects to your residential intercom. - - -
Alarme Télénet Offers security and alarm products and services
03/16/20 to residential, commercial, and industrial sectors. - - -
Tecno-Kébec Communications
Provides data security solutions for IoT devices in
03/11/20 CENTRI Technology AgilePQ - - -
Healthcare, Industrial, Residential, and Utilities markets.
High Rise Fire Engages in the installation, service, and
03/06/20 Scutum Group maintenance of fire alarm and life safety systems. - - -
and Security
Minuteman Security Designs, installs, and maintains security, life safety,
03/02/20 Norris and communications systems. - - -
Technologies
The Stephens Distributes leading access control and building
02/24/20 Kele automation solutions. - - -
Group
A+ Technology & Biztek Offers access control, mass notification, IP cameras,
02/10/20 visitor management, and training solutions. $4,500.0 0.5x 9.9x
Security Solutions Connection
Forescout Advent Provides network security products including IoT device
02/06/20 ~$1,786.0 5.3x -
Technologies International security monitoring.
Offers commercial fire alarm detection, installation,
02/05/20 Alliant Integrators ADT inspection, and maintenance services. - - -
L3 Security &
02/04/20 Leidos Manufactures security detection systems. $1,000.0 2.0x -
Detection
DrawDown Develops security solutions for concealed weapons
01/28/20 Liberty Defense detection in high volume foot traffic areas. - - -
Detection
Doyle Security Provides video surveillance, managed access
01/27/20 Titan Security control and biometrics, and monitored detection. - - -
Systems
Develops cloud-based access control systems
01/09/20 Sequr Genea that integrate into existing hardware systems. - - -
01/07/20 NextGenID Zeva Manufactures biometric access control systems. - - -
Provides residential security services, doing business
01/06/20 Defenders ADT as Protect Your Home. $381.3 - -
Insight Partners; Develops IoT security solutions that detect activity and
01/06/20 Armis $1,100.0 - -
CapitalG threats on devices and networks.
Note: CF = confidential; highlighted deals are Capstone’s transactions
Source: Capital IQ, PitchBook, FactSet, and Capstone Research
7Security Solutions | December 2020
PUBLIC COMPANY HIGHLIGHTS
Q3 Performance Highlights:
• Total revenue fell to $1,299 million in Q3 2020, compared to $1,301
million in Q3 2019
• Net loss of $113 million compared to $182 million in Q3 2019
• Adjusted EBITDA modestly increased quarter-over-quarter to reach $564 (NYSE:ADT)
million, while declining YOY from $624 million
Trading Data (11/10/2020):
• Trailing twelve-month gross customer revenue attrition of 12.9% beat
expectations, compared to 13.1% in Q2 and 13.5% in Q3 2019 Stock Price $7.32
52 Week High $17.63
Analysis: ADT’s revenue slightly declined YOY, with monitoring and related Enterprise Value $15,751.9mm
services (M&S) revenue falling 4%, reflecting ADT’s sale of ADT Canada in
EV/EBITDA 7.1x
November 2019.12 Offsetting the decline in M&S revenue was a RMR
increase of 10% in the U.S. as a result of improvement in average prices EV/Revenue 3.0x
while installation and other revenue increased 22%. The rise in installation Net Debt/EBITDA 4.6x
and other revenues was driven by higher installation sales in its Residential
segment, offsetting commercial installations declines as a result of COVID-19 Source: Capital IQ
headwinds and the sale of ADT Canada.
Google (Nasdaq:GOOG) closed a $450 investment in ADT, allowing ADT to reduce debt and fund future growth. In addition,
ADT and Google entered a long-term partnership to create next generation smart home security offerings, leveraging Nest’s
leading hardware and services, powered by Google’s machine learning, with ADT’s installation, services, and monitoring
solutions as well as a new end-to-end platform under development. Despite commercial headwinds driven by the downturn,
ADT remains optimistic in its commercial business. “Looking ahead, while there are still a number of economic and political
uncertainties, we're optimistic about our ability to compete in the commercial space and returning to growth in 2021. High-
quality commercial tuck-in acquisitions will continue to be a part of our playbook. And as the economy recovers, we remain
optimistic about this part of our business,” commented James DeVries, CEO of ADT, in its Q3 earnings call.
Q3 Performance Highlights:
• Revenue in Q3 of $728.4 million is down 2.7% YOY and 3.4% on an
organic basis
• Adjusted operating margin of 23.3%, reflects a 20 bps increase YOY
(NYSE:ALLE)
• Improved revision to 2020 revenue guidance, indicating a projected
decline of 6-6.5%
• Adjusted operating income of $169.4 million represents a 2.1% decline Trading Data (11/10/2020):
YOY, driven by COVID-induced reduction in volume Stock Price $115.15
52 Week High $139.24
Analysis: Allegion, consistent with current industry dynamics, experienced a
revenue decline of 2.7%, driven by softness in its non-residential division Enterprise Value $11,967.1mm
which experienced low double digit revenue declines.13 Year-to-date EV/EBITDA 17.9x
electronics sales have declined mid-single digits as discretionary commercial EV/Revenue 4.3x
projects are delayed. This was offset by its residential division, generating
Net Debt/EBITDA 1.7x
low double digit growth. However, when comparing to Q2 2020, the
company delivered ~24% revenue growth in Q3, indicating an improvement
in industry conditions and a recovery in the broader market for security Source: Capital IQ
solutions.
Allegion intends to continue to utilize M&A to stimulate growth, with heightened focus on seeking electronics and software
components as well as traditional mechanical access solutions. “We will also take a hard look at traditional mechanical
access -- opportunities in markets where we think we can win and they have sufficient scale, size. We've, I think, done 20-plus
acquisitions of different sizes. Size -- scale and size matter. A small acquisition, especially in a mechanical space, doesn't -- it
takes all the human capital, so we're leaning more towards technology, software and assets of size,” commented David
Petratis, Chairman, CEO, and President of Allegion, in its Q3 earnings call.
8Security Solutions | December 2020
PUBLIC COMPANY TRADING & OPERATING DATA: ACCESS CONTROL
Price % 52 Wk Market Enterprise LTM EV / LTM
Company 11/10/20 High Cap Value Revenue EBITDA Margin Revenue EBITDA
Allegion plc $115.15 82.7% $10,598.3 $11,697.1 $2,712.1 $653.9 24.1% 4.3x 17.9x
ASSA ABLOY AB $25.44 88.2% $28,256.7 $31,891.2 $9,969.3 $1,754.4 17.6% 3.2x 18.2x
dormakaba Holding AG $514.66 65.4% $2,139.5 $2,868.8 $2,681.8 $343.0 12.8% 1.1x 8.4x
Mean 18.2% 2.9x 14.8x
EV = enterprise value; LTM = last twelve months Median 17.6% 3.2x 17.9x
$ in millions, except per share data
NM = Not Meaningful Harmonic Mean 17.0% 2.0x 13.0x
PUBLIC COMPANY TRADING & OPERATING DATA: ALARM MONITORING
Price % 52 Wk Market Enterprise LTM EV / LTM
Company 11/10/20 High Cap Value Revenue EBITDA Margin Revenue EBITDA
ADT Inc. $7.32 42.5% $6,042.4 $15,751.9 $5,298.3 $2,226.0 42.0% 3.0x 7.1x
Alarm.com Holdings, Inc. $70.38 88.7% $3,456.5 $3,379.1 $592.9 $103.4 17.4% NM NM
Monitronics International, Inc. $3.35 33.5% $75.3 $1,079.1 $490.2 $240.3 49.0% 2.2x 4.5x
Mean 36.2% 2.6x 5.8x
Median 42.0% 2.6x 5.8x
Harmonic Mean 29.5% 2.5x 5.5x
PUBLIC COMPANY TRADING & OPERATING DATA: DIVERSIFIED IT SERVICES & INTEGRATION
Price % 52 Wk Market Enterprise LTM EV / LTM
Company 11/10/20 High Cap Value Revenue EBITDA Margin Revenue EBITDA
Diebold Nixdorf, Incorporated $8.55 65.5% $664.2 $2,996.9 $3,948.0 $414.3 10.5% 0.8x 7.2x
Honeywell International Inc. $201.98 96.2% $141,726.5 $149,962.5 $33,233.0 $7,873.8 23.7% 4.5x 19.0x
Johnson Controls International $44.42 93.4% $32,257.8 $39,211.8 $22,317.0 $2,739.0 12.3% 1.8x 14.3x
Kratos Defense & Security $19.29 86.7% $2,368.0 $2,392.8 $726.4 $68.6 9.4% 3.3x NM
Shotspotter, Inc. $31.51 76.9% $359.9 $331.7 $44.0 $8.6 19.5% NM NM
Stanley Black & Decker, Inc. $178.79 93.8% $28,646.3 $34,773.0 $13,841.2 $2,412.2 17.4% 2.5x 14.4x
Mean 15.5% 2.6x 13.8x
Median 14.9% 2.5x 14.4x
Harmonic Mean 13.8% 1.8x 12.1x
Source: Capital IQ as of November 10, 2020
9Security Solutions | December 2020
PUBLIC COMPANY TRADING & OPERATING DATA: VIDEO SOLUTIONS
Price % 52 Wk Market Enterprise LTM EV / LTM
Company 11/10/20 High Cap Value Revenue EBITDA Margin Revenue EBITDA
Canon Inc. $18.35 62.2% $19,189.5 $22,960.5 $30,036.2 $3,601.1 12.0% 0.8x 6.4x
FLIR Systems, Inc. $36.06 60.7% $4,729.1 $5,242.3 $1,888.4 $445.4 23.6% 3.7x 11.8x
Mobotix AG $7.03 69.6% $94.0 $119.7 $75.9 $4.7 6.2% 1.4x 25.5x
Shenzhen Infinova Limited $0.62 62.3% $739.2 $888.1 $696.3 $4.4 0.6% 1.4x NM
Mean 10.6% 1.6x 14.5x
EV = enterprise value; LTM = last twelve months Median 9.1% 1.4x 11.8x
$ in millions, except per share data
NM = Not Meaningful Harmonic Mean 2.2% 1.3x 10.7x
Last Twelve Month Margin Performance By Segment
Mean EV/Revenue Mean EV/EBITDA
20.0x
18.0x
16.0x 14.8x 14.5x
13.8x
14.0x
12.0x
10.0x
8.0x
5.8x
6.0x
4.0x 2.9x 2.6x 2.6x
1.6x
2.0x
0.0x
Access Control Alarm Monitoring Diversified IT Video Solutions
Last Twelve Month Revenue and Historic EBITDA Multiples
Mean Gross Margin % Mean EBITDA Margin %
80%
69.6%
70%
60%
50% 42.2%
41.3%
40% 36.2% 35.4%
30%
18.2%
20% 15.5%
10.6%
10%
0%
Access Control Alarm Monitoring Diversified IT Video Solutions
Source: Capital IQ as of November 10, 2020
10Security Solutions | December 2020
SECURITY SOLUTIONS REPORT CONTRIBUTORS
Todd McMahon
Head of Investment Banking
tmcmahon@capstoneheadwaters.com | 617-619-3334
Todd McMahon possesses over 20 years of transaction, financial services and corporate executive
experience. Prior to Capstone Headwaters, Todd was President of Array Financial Services, a Boston
based boutique M&A advisory firm he founded in 2002. He began his career at Putnam Investments,
later moving to Bank Boston’s investment banking group. Later, Todd served as Managing Director at
Ross Crossland Weston/RCW Mirus, where he was responsible for managing the firm’s technology
investment banking practice. Todd’s investment banking experience is complemented by his
involvement as an entrepreneur and investor where he was involved in various consolidation
transactions, raised over $30mm of debt and equity financing and was responsible for managing all
aspects of operations. He earned his BA from the University of Massachusetts and his MBA from
Boston University.
Tom McConnell
Managing Director
tmcconnell@capstoneheadwaters.com | 303-951-7125
Tom joined Capstone Headwaters in 2011 and brings over 20 years of investment banking experience
for clients’ benefit. He has an impressive track record of completed transactions with cyber security,
physical security, compliance and risk management related companies. Mergers, acquisitions, and
capital raise engagements with founder owned, private equity backed and public corporations across
the United States and internationally, demonstrate the depth of his sector knowledge and transaction
acumen.
Throughout his career, Tom has also believed in the importance of giving back to the community and
has been recognized for his professional accomplishments and leadership. He co-founded Colorado
Cyber with the mission of connecting private and public sector leaders in the cybersecurity ecosystem,
stimulating discussion on critical issues, and supporting economic growth. Tom is a regular contributor
to security industry publications and has a personal commitment to the broader mission of the security
industry in helping make our world a safer place.
He earned his BA in Economics from Miami University, JD/MBA from the Denver Strum College of Law
and Daniels College of Business at University of Denver. Additionally, he is a Series 63 Registered
Securities Representative and Series 79 Registered Banking Representative.
Benjamin Kelly
Research Analyst
bkelly@capstoneheadwaters.com | 617-619-3390
Ben joined Capstone Headwaters in 2018 and serves as an Analyst on the Boston Research Team. He
works directly with senior investment bankers, utilizing data and market analysis to deliver key industry
insights to C-suite executives. Ben has a primary focus in the Industrial & Manufacturing and Business
Services sectors. Prior to joining Capstone Headwaters, Ben worked as an intern at The Baupost Group
within its Portfolio Valuation department. Ben earned a BA in Economics from Providence College and
is a Series 79 Registered Investment Banking Representative.
11Security Solutions | December 2020
FIRM TRACK RECORD
Capstone Headwaters maintains an active Business Services practice in the middle market, with Security Solutions being an
important vertical within our focus. This market presence allows Capstone Headwaters to provide security companies with
experienced, up-to-date market data and access to key decision makers among the industry’s most active acquirers
and investors.
PROJECT PROJECT PROJECT PROJECT
BOREALIS IRONMAN NITRO PRESERVE
corporate sale corporate sale corporate sale corporate sale
(in process) (in process) (in process) (in process)
Value-Added Biometrics Managed Security Fire & Life Safety
Reseller Technology Provider Services Provider Systems Provider
has been acquired by has been acquired by has been acquired by
has been acquired by has been acquired by has merged to form
a portfolio company of
Note: Deals also include Cybersecurity industry clients
12Security Solutions | December 2020
CITATIONS
1. McKinsey, “When will the COVID-19 pandemic end?” https://www.mckinsey.com/industries/healthcare-systems-and-services/our-insights/when-will-
the-covid-19-pandemic-end, accessed November 23, 2020.
2. ADT, “ADT Reports Third Quarter 2020 Results,” https://investor.adt.com/press-releases/press-release-details/2020/ADT-Reports-Third-Quarter-
2020-Results/default.aspx, accessed November 18, 2020.
3. Allegion, “Allegion Reports Third-Quarter 2020 Financial Results; Raises Full-Year EPS Outlook,” https://investor.allegion.com/~/media/Files/A/
Allegion-IR/press-release/q3-2020-earnings-release.pdf, accessed November 18, 2020.
4. Markets and Markets, “Vsaas Market with COVID-19 Impact by Type (Hosted, Managed, and Hybrid), Vertical (Commercial, Infrastructure, Residential,
Public Facilities, Military & Defense, and Industrial) and Region-Global Forecast to 2025,” https://www.marketsandmarkets.com/Market-Reports
/video-surveillance-as-a-service-market-773.html, accessed November 18, 2020.
5. Markets and Markets, “Video Analytics Market by Component, Application (Intrusion Management, Incident Detection, People/Crowd Counting,
Traffic Monitoring), Deployment (On-premises and Cloud), Type, Vertical, and Region - Global Forecast to 2025,”
https://www.marketsandmarkets.com/Market-Reports/intelligent-video-analytics-market-778.html, accessed November 18, 2020.
6. ELERTS, “Candid About Camera – Human Analytics vs. Video Analytics,” https://elerts.com/candid-about-cameras/, accessed November 18, 2020.
7. PitchBook, “2019 Annual Fund Strategies Report,” https://files.pitchbook.com/website/files/pdf/PitchBook_2019_Annual_Private_Fund_Strategies_
Report.pdf, accessed November 18, 2020.
8. Motorola, “Motorola Solutions Adds Cloud-Based Mobile Application Capabilities with Acquisition of Callyo,” https://newsroom.motorolasolutions
.com/news/motorola-solutions-adds-cloud-based-mobile-application-capabilities-with-acquisition-callyo.htm, accessed November 18, 2020.
9. Motorola, “Motorola Solutions Acquires Global Video Security Solutions Provider Pelco for $110M in Cash, Continuing Investment in Video Security
& Analytics,” https://newsroom.motorolasolutions.com/news/motorola-solutions-acquires-global-video-security-solutions-provider-pelco-for-
110m-in-cash-continuing-investment-in-video-security-analytics.htm, accessed November 18, 2020.
10. Motorola, “Motorola Solutions Acquires IndigoVision, UK-Based Provider of End-to-End Video Security Solutions,” https://newsroom.
motorolasolutions.com/news/motorola-solutions-acquires-indigovision-uk-based-provider-end-to-end-video-security-solutions.htm, accessed
November 18, 2020.
11. Razberi Technologies, “Razberi Technologies Acquired By ACRE,” http://blog.razberi.net/2020/11/razberi-acquired-by-acre, accessed November 18,
2020.
12. ADT, “Q3 2020 Earnings Presentation,” https://s22.q4cdn.com/631128414/files/doc_financials/2020/q3/ADT-3Q20-Earnings-Deck_Final.pdf, accessed
November 18, 2020.
13. Allegion, “Third-Quarter 2020 Financial Results,” https://investor.allegion.com/~/media/Files/A/Allegion-IR/reports-and-presentations/allegion-third-
quarter-2020-earnings-presentation.pdf, accessed November 18, 2020.
Disclosure: This report is a periodic compilation of certain economic and corporate information, as well as completed and announced merger and acquisi-
tion activity. Information contained in this report should not be construed as a recommendation to sell or buy any security. Any reference to or omission of
any reference to any company in this report should not be construed as a recommendation to buy, sell or take any other action with respect to any security of
any such company. We are not soliciting any action with respect to any security or company based on this report. The report is published solely for the
general information of clients and friends of Capstone Headwaters. It does not take into account the particular investment objectives, financial situation or
needs of individual recipients. Certain transactions, including those involving early-stage companies, give rise to substantial risk and are not suitable for all
investors. This report is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should not be relied
upon as such. Prediction of future events is inherently subject to both known and unknown risks and other factors that may cause actual results to vary
materially. We are under no obligation to update the information contained in this report. Opinions expressed are our present opinions only and are subject
to change without notice. Additional information is available upon request. The companies mentioned in this report may be clients of Capstone Headwaters.
The decisions to include any company in this report is unrelated in all respects to any service that Capstone Headwaters may provide to such company. This
report may not be copied or reproduced in any form, or redistributed without the prior written consent of Capstone Headwaters. The information contained
herein should not be construed as legal advice.
13INTEGRATED CRISIS MANAGEMENT SOLUTIONS
As a firm, we have mobilized our collective resources to deliver an integrated solution to business owners navigating through
these times. We can help frame your decisions, access capital to protect your position, and provide specialty transaction
expertise to capture opportunities as they arise.
Our full-service capabilities help companies through every aspect of the business, supported by dedicated industry experts,
market intelligence, and private equity coverage.
Mergers & Acquisitions Financial Advisory Capital Access
We can assist opportunist We specialize in performance We help manage through new or
acquisitions, execute sales, and improvement and value creation existing lenders or investors and
navigate distressed transactions. in difficult situations. secure an optimal solution.
Strategic Acquisitions Board Advisory Debt Financing
• Target Identification • Strategic Blueprinting • Bridge / Interim Financing
• Valuation & Structure • Evaluate Capital Adequacy • ABL and Cash Flow Revolvers
• Buy-Side Due Diligence • Performance Tracking • 1st and 2nd Lien Term Loans
• Quality of Earnings • Management Accountability • Subordinated Debt
• Buy-Side M&A Execution • Communication • Sale-Leasebacks
Sales & Divestitures Operational Effectiveness Equity Financing
• Corporate Valuation • Cost Structure Management • Growth Equity
• Market Assessment • Operational Assessment • Secondary Equity Recaps
• Transaction Readiness • Management Assessment • Structured Equity
• Sell-Side M&A Execution • Sales Augmentation • Acquisition Financing
• Asset Divestiture • Organizational Optimization • Investor Management
Distressed Transactions Crises Management Alternatives
• Business Unit Divestiture • Turnaround / Interim Mgmt. • Creditor Mediation
• Distressed M&A • Corporate Restructuring • DIP and Exit Financing
• §363 Sale • Bankruptcy Protection • Government Support Programs
WE ARE ENGINEERED TO MEET THE FULL LIFECYCLE DEMANDS OF PRIVATE COMPANIES
BUILD GROW REALIZE SUPPORT
TO LEARN MORE ABOUT OUR SERVICES AND SPEAK TO A MEMBER OF OUR TEAM CONTACT US.
12BUILT FOR THE MIDDLE MARKET
Capstone Headwaters is one of the largest and most active independent investment banking firms in the United States. The
firm has a rich 18+ year history of achieving extraordinary results for middle market entrepreneurs, business owners,
investors, and creditors. The firm offers a fully integrated suite of corporate finance services, including merger & acquisition,
debt & equity placement, ESOP advisory, corporate restructuring, valuation & fairness opinion, and financial advisory
services.
Headquartered in Boston, Capstone Headwaters has over 170 professionals across 16 offices in the U.S. with 16 dedicated
industry groups. Capstone has been recognized consistently as one of the top investment banks to work for and “U.S. Middle
Market Firm of the Year.”
UNITED STATES
170+ professionals
16 offices
INTERNATIONAL
Boston Burlington Chicago
Dallas Denver Houston Los Angeles 450+ professionals
New York Orange County Philadelphia 60+ offices in 40 countries
Richmond San Diego San Francisco
St Louis Tampa Washington DC Asia: China India Japan
Latin America: Argentina Brazil Chile Colombia Mexico Peru
Africa: Congo Egypt Ghana Ivory Coast Mauritius Morocco Senegal South Africa
Europe: Belgium Bosnia Croatia Czech Republic Finland France Germany Herzegovina
Hungary Ireland Italy London Netherlands Norway Poland Russia Serbia Slovenia
Spain Sweden Switzerland Turkey United Kingdom
www.capstoneheadwaters.com
12You can also read
