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Capstone Partners, a middle market investment banking firm, released its July 2023 Security Solutions Sector Update, reporting that a robust spate of private equity-led add-on acquisitions, driven by consolidation among systems integrators, has buoyed merger and acquisition (M&A) activity in the Security Solutions sector through year-to-date (YTD) 2023.

Technology innovations

Deal volume in the sector has moderated year-over-year (YOY), however, technology innovations have created new revenue opportunities to drive growth, supporting a healthy forecast for dealmaking through year-end.

To date, M&A activity in the Security Solutions sector has also shown greater resilience than the broader M&A market.

M&A volume

Private equity buyers in the sector have opted to acquire businesses through an established portfolio

Through Q1 2023, sector deal volume declined 19.6% YOY, compared to a 25.2% YOY drop in the broader M&A market, according to Capstone’s Q1 2023 Capital Markets Update.

Financial buyers in particular have kept M&A volume afloat in the sector, accounting for 57.1% of all transactions through YTD. Private equity buyers in the sector have opted to acquire businesses almost exclusively through established portfolio companies.

IoT-connected physical security devices

While the advent of new Internet of Things (IoT)-connected physical security devices have improved end-user accessibility and data collection, the integration of physical and digital security solutions has brought on new cybersecurity challenges.

In turn, security systems integrators have evolved their service offerings to adapt to more complex security environments. Systems integrators operating in the Security Solutions space have previously integrated individual and localized physical security devices.

VSaas and ACaaS

Integrators have pivoted their services to address multiple security vulnerabilities at once

Since the IoT connects all devices through a common network, integrators have pivoted their services to address multiple security vulnerabilities at once. This has led to more comprehensive security product models for Residential and Commercial end markets, as companies can market packaged services that include product and integration.

Packaged services such as Video Surveillance-as-a-Service (VSaaS) and Access Control-as-a-Service (ACaaS) have benefitted systems integrators through recurring revenue streams and increased sales.

Security stability

"Security remains a bastion of stability and growth amidst this uncertain economic climate," said Capstone Managing Director, Tom McConnell, the Lead Contributor in the newly released report, adding "Strategic and financial acquirers recognize the continued opportunity in the space, supporting a solid deal-making environment."

Report inclusions

Also included in this report:

  • A breakdown of public company performance, categorized by end market and segment.
  • How strong sentiment from U.S. citizens on elevated crime has benefited investment into the sector.
  • Pioneering companies in the sector have focused on IoT-connected physical security products.
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