Election, interest rate uncertainty will give way to ‘huge overhang of money’ in 2025

NEW YORK—The security industry’s financial outlook appears to be on an upswing, according to three experts who offered their investment insights during the recent Security Industry Association’s (SIA’s) Securing New Ground (SNG) conference. 

M&A acceleration in 2025   

John Mack, executive vice president, Imperial Capital, pointed out that YTD global M&A activity rose 14% to $846.8 billion compared to 2023; however, U.S. activity was down 8% to $338 billion in the same timeframe.  

However, Mack noted a Q4 slowdown is expected to be temporary, driven by election-related concerns and unknowns. 

“Looking ahead, 2025 momentum is anticipated to accelerate as the Fed continues to implement rate cuts,” he said.  

Mack stated that U.S. private equity dealmaking in the first half of 2024 grew by 12% year-over-year in both count and value, with more than 4,000 deals and $415 billion in deal volume expected, marking the strongest six-month period since 2022.  

“Private equity continues to be a huge impact in the economy - a trillion dollars, it's a little less than a trillion today - but there is a huge overhang of money that needs to be put to work,” he said.  

‘Momentum in the market’   

Alper Cetingok, managing director/head of diversified industrials, Raymond James, pointed out that there’s “a lot of momentum in the market.”  

“For us, since the beginning of 2021, which is a bit of a line of demarcation, obviously, with COVID, we've closed 43 deals globally just in security and safety, with some $13+ billion of transaction value,” he said. “We anticipate that this is going to continue.” 

Cetingok noted that M&A deal volume for August 2023-24 was below prior-year levels, with 8,884 deals this period compared to 10,534 during the prior period. In addition, the total aggregate transaction value of deals increased by 27% year-over-year to $1.146 billion.  

“Deal volume by transaction number is down and deal value is up, so you're seeing larger capital commitments on the part of both strategic buyers, as well as private equity groups,” he said. “That's probably going to continue, I'd say, from a trending perspective. But we do believe that the M&A markets are going to continue to improve in the security industry itself.”  

Building blocks of investment  

Annie Lan, partner, Egis Capital Partners, pointed out what she termed the “building blocks of an investment opportunity” – strong and aligned management and organization; appropriate balance sheet for the growth strategy; sustainable unit economics and business model; and proven service demand/product market fit. 

“Growth can be defined by revenue and EBITDA,” she explained. “To share how investors generally think, we think long-term trends - what are the key long-term trends that will drive and shape the future in the next 10-15 years? If we say cloud, AI, SaaS, all these different trends, as an investor, you define your strike zone based on your strategy and risk return appetite. These building blocks generally kind of fall into these boxes.”