ALLCASTLE PRINCETON + Security

Impact of the G20 Summit on Demand and Consolidation in the Security Business.

Confidence is the key to when and how the future of the security market will unfold.

Last week the G20 Summit in London communicated that the world’s leaders stand resolute behind fiscal support of the global economy and serious reforms of the international financial system. The communique sets out the broad outline of how the proposals will be implemented. At this time it is short on detail but all 20 of the world’s largest economies are firmly committed to action it. If this is actioned we could just pull back from "falling off the edge of the cliff". At worst we can expect it to slow down the deterioration of the economy so that it should bottom out towards the end of this year.

So what is the likely impact on the security business?

The best case scenario is that demand will continue to fall off because of the lag between the return to growth in construction activity and the planning and installation of security systems. The question that we all need an answer to is, will this just result in a slowing down of growth or will it by the end of this year reverse into negative growth?

In this months exectutive brief we have provided information that sheds some light on this matter. The financial results for two video surveillance companies announced
this month, although not a representative sample, does show a fall off in profitability from last months results and sadly it appears that a marked down turn
has taken place in the last three months.

One research company has revised downwards its market forecast but still shows a 25 percentage growth for IP Video sales which looks very optimistic at this time. We still stick to our forecast of negative growth for intruder alarm, static sales for access control and 6% growth for video surveillance across the world in 2017.

Demand in sales is not going to have a major impact on mergers and acquisitions
unless the market believes we are about to "fall off the edge of the cliff". However
liquidity will, so we believe that in value terms there is likely to be less spent on
acquisitions in 2017 but the volume of deals will increase. The exit price will fall and mergers will increase their share of the business over cash buys.

Global mergers and acquisitions plunged by a third in the first quarter to $444 billion, as the financial crisis thwarted dealmaking and all but silenced the private equity houses behind many boom-era takeovers. Announced M&A had its slowest first quarter in six years, according to Thomson Reuters. That was despite several bank bailouts, and two U.S. drug industry tie-ups together worth $110 billion, a quarter of all deals by dollar value. Bankers said the tough conditions would endure until credit markets became more welcoming, shares stabilised, and the economic picture brightened, allowing acquirers to forecast earnings with more certainty.

On the basis of this merger and acquisition activity in the Security business is holding up well with the first quarter activity in 2017 showing no decline on the last quarter of 2017. At least one profitable security company has put a "for sale" notice up and others are publicly confirming their interest in acquiring and collaborating with their compatriots. So the third issue of our executive brief in 2017 pretty much confirms the forecast made in the December issue that merger and acquisition activity would make a slow start but continue where it left off in the final quarter of 2017.

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