PSA-TEC Panel: Mergers & Acquisitions Surge ‘Here to Stay’; Building Automation, IoT a Wild Card
WESTMINSTER, Colo. – From a macro perspective the top two general sessions offered at PSA Security Network’s annual TEC event are the State of the Industry and State of the Integrator. The four-person panel presentations were offered consecutively on Tuesday at the affair’s host Westin Westminster venue in suburban Denver, less than a mile from PSA’s headquarters. While there was some topical overlap between the two gatherings, there was enough variety to make each 75-minute discussion breeze by in a hurry. It helped that the moderators and panelists were all highly distinguished and accomplished professionals.
Led by PSA President and SSI Hall of Famer Bill Bozeman, the State of the Industry pitched hot issues at NetOne’s David Carter (also an SSI Hall of Famer), National Cyber Security Alliance’s Michael Kaiser, Chuck Wilson of the National Systems Contractors Association (NSCA) and Imperial Capital’s John Mack.
The breakneck pace of mergers and acquisitions that has swept through the electronic security industry the past few months was a lightning rod of discourse. Mack said the activity surpasses anything he has witnessed during his many decades in the business. “Our industry is growing in a really significant way,” he said. “The M&A activity is here to stay, as this industry is extremely attractive to investors.” Carter pointed out that there are great opportunities for new companies, and that the M&A is cyclical and such churn is to be expected and healthy for the industry. All on the panel felt this was a positive trend demonstrating how robust the industry is today.
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Cybersecurity continued to be a pressing topic, even as the majority of physical security integrators are playing the wait-and-see game. But Mack said he believes there are huge opportunities ahead for physical security integrators to move more into the information technology sector, working with IT in the many places in which physical and logical are and will continue to intersect. He urged security integrators to attend the RSA tradeshow to get a better handle on the market and its rich partnering opportunities. Wilson stated that NSCA members are trying to learn more about cybersecurity like everyone else. He said they are especially worried about the potential liability exposure wiping out their business.
“You should all know about and be looking at the NIST framework around private sector cybersecurity,” advised Kaiser. “This will be the standard for now; it’s comprised of five steps and they are fairly easy. Cybersecurity is mostly self-regulated at this time, but the more an industry like ours shares information for best practices and is proactive, the better off it will be in the long run.”
Attendees listen to the panel discussions from their seats.
When asked to reveal what to expect in the short and midterm trends wise, Wilson said integrators should expect to see 5%-10% growth depending on which vertical markets they specialize. He said the real wild card was building automation and the commercial Internet of Things (IoT), with potentially exponential opportunities for those providers that can find their spot as convergence continues to blur lines among manufacturers, integrators and service providers. Others on the panel echoed Wilson’s comment that it is going to be especially telling to see what becomes of the recent JCI-Tyco merger in terms of what total buildings integration is going to look like.
The panel was also in agreement that the residential market is reaching a saturation point with the smart, connected home craze and that the real growth and promise lies in the commercial managed services and IoT realm. “Every new residential system now offers mobile connectivity and interactive services,” said Carter. “Residential has been commoditized.”
But while he sees the larger opportunity now in the commercial services sector, he cautioned that there is no point getting into it unless you have the right sales force. “Security as a service only happens when firms mandate it to the sales force, and they must be properly compensated in accordance with that new model. In most cases, you need brand new salespeople.” Mack went a step further, suggesting integrators launch entirely new companies as complements to their systems-oriented business because he says the models are that different from each other. Bozeman added that increasingly PSA member companies are turning away work unless a recurring revenue element is part of the contract.
The State of the Integrator presentation featured SSI Editorial Advisory Board member Carey Boethel of Securadyne; United Technology’s Brent Franklin; Mike Meredith of SEi; and Integrated Security Systems’ Jeff Nunberg. Interjecting incisive analysis and addendums throughout was moderator and SSI Business Fitness columnist Paul Boucherle of Matterhorn Consulting.
To make it more interesting, Boucherle asked everyone for their input on a handful of key topics. When asked what they were most excited about, some of the leading responses the panel offered were mobility and the ability to virtually run a command center remotely on the go, and managed services and cloud-based solutions. The flipside was what they were most worried about, with answers there ranging from pricing erosion to cybersecurity to commoditization.
When asked about the recent rash of M&A activity and consolidation on both the integrator and manufacturer side, it was just about unanimous that it is positive for the former but negative for the latter. “As an integrator you have to emphasize and deliver quality services, and in doing so you can take some business away from the larger companies,” said Franklin. “However, consolidation is a negative on the manufacturer side because you lose those important relationships and they don’t seem to uphold their service.”
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As an integrator you have to emphasize and deliver quality services, and in doing so you can take some business away from the larger companies. However, consolidation is a negative on the manufacturer side because you lose those important relationships and they don’t seem to uphold their service. – Brent Franklin, United Technology
Boethel added, “Consolidation creates lift for integrators; that is it allows smaller independent integrators the opening to move up to the next tier.” Nunberg said it often pulls stronger competitors out his market. Boucherle added that consolidation often broadens the talent pool as people are flushed out of the merged companies, creating a recruitment opportunity.
The panel had a similar take on competition, in that they welcome it and could almost care less what others do because first and foremost they make sure their business is doing everything it can to be the very best it can be.
“We really focus on building and maintaining a very strong relationship with the manufacturers,” said Franklin. “We then show and leverage t
hat partnership with the customer, which goes a long way.”
“I actually love competition because I have complete faith in our people and what we do, plus it reflects this is a growing industry attracting newcomers,” said Meredith.
When asked specifically about pricing transparency and margin erosion, the group espoused the virtues of bringing real, unquestionable value to customers that all but obliterates price objections. They emphasized the importance of working with vendors that value, honor and support the channel, and that the loyalty then becomes a two-way street. They all said they bail on manufacturers that sell direct, although Franklin voiced concern about that increasingly becoming an issue as consolidated suppliers become more desperate for higher volume. Each panelist said they would not hesitate to walk from price-only customers. “We don’t want customers looking to only pay $5 margins on cameras,” said Meredith.
The closing topic was establishing and maintaining a healthy and productive company culture. Each panelist said you have to invest in your people, offer them career development and allow them a say in what they do, and that quality customer care flows out of that. Employees need to feel involved and like what they are doing is important.
“High turnover means a more unstable customer base, that’s just a fact,” said Franklin.
All conceded that although very challenging to maintain, frequent and open communications are essential to a positive company culture. Meredith closed by speaking to the invaluable experience of visiting other security integration companies to see how they handle their business. “I have visited probably 25 other companies, and I always learn something. I highly recommend it.”
Mack added he envisions fantastic things soon emerging in the commercial security services space. “There is a lot of appetite among investors now to look at opportunities in the commercial business using various recurring revenue-based models,” he said. “Managed services technology that was not ready even just five years ago [but] absolutely is ready today in just about all areas of security. And IoT is going to blow up in security very soon.” Kaiser added that another great opportunity for integrators is helping end users assure their security devices that may be five or 10 years old remain updated from a cybersecurity perspective.
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