Mack optimistic on M&A market

SANTA MONICA, Calif.--In early March, more than 200 representatives of the security industry and investment community convened at the day-and-one-half Security Growth Conference to learn about and discuss the current climate and trends in the security industry. Although each sector of the market specializes in diverse technologies, at this conference the common thread was convergence. The organization of the conference enabled 51 presenting companies--physical security services; security product manufacturers in categories running the gamut from video and enterprise IT security to biometrics/ID solutions; and integrators--to share with attendees for 30 minutes their business as well as strategic vision. The diverse presentations made clear that advances in technology are propelling overall industry growth and fueling interest in funding. For example, RFID and biometric technologies were mere concepts a few years ago, now those technologies have extended beyond government initiatives and are becoming more active in the commercial sector. Video analytics also was once a high concept, but has now become a reality. John Mack, founder of the conference and chief executive officer at USBX Advisory Services, said in his welcoming presentation at the Loews Santa Monica Beach Hotel that the 2005 M&A market was very strong and is an indicator of what will come in 2006. "There is growth, no matter what sector." With this in mind, the possibilities are endless for investment activity. The $135 billion security industry thrives on double-digit year-over-year growth. "Everybody is doing deals with cash," Mack said. Fewer than 11 percent of deals were all-stock transactions, he added. There is "lots of money to put to work; the security industry is getting a lot of attention," Mack added. In his presentation, Mack noted the United States M&A dollar deal volume rose an impressive 31 percent to $1.2 trillion in 2005. The torrid M&A pace continued in the first eight weeks of 2006, with more than $473 billion in acquisitions announced, compared to $378 billion at this time in 2005. The interest in the security industry pushed M&A in security companies. According to Mack's presentation, 123 major security deals in 2005 were announced, a 44.7 percent increase over 2004. Public security companies ended the year trading up 1.5 percent. Another factor is consolidation among the industry, which is visible as the global market is considered fragmented, noted Mack. In this case, companies seek to expand expertise and vertically integrate. Large industrial companies and financial buyers are attracted to the steady cash flow characteristic of service companies, Mack said. The sectors actively consolidating are public safety, biometrics and manufacturing.