What does Orsus's Acquisition Mean for PSIM?

•Published Nov 26, 2009 00:00 AM

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The Orsus acquisition has delivered a great spike in discussion about PSIM - some good, some critical, especially given the price paid. (For background, see our review of the NICE-Orsus acquisition).

Not surprisingly, the PSIM manufacturers see this as positive. Vidsys, the most vocal PSIM manufacturer made the following claims about the Orsus deal:

NICE is essentially saying that they "need to have a PSIM solution in order to be a player and sell my software and equipment into those markets."
On Orsus small revenues, "the numbers never look as big for software vendors as for vendors who are selling hardware"
On the strategic benefit of PSIM, "they would not be able to get those added revenues or value propositions without the PSIM software"
On why video and access companies are referring to their systems as PSIM: "they're worried about losing customers"

We think the core argument about incumbents needing PSIM is more likely the other way around. Incumbents generally use PSIM or command and control software as a tool to up-sell existing clients and existing deployments (GE with Facility Commander, Siemens with Vistascape, etc.). It's unlikely that NICE or Milestone, Genetec, etc. would lose their core business without having a PSIM. The main practical reason is that PSIM selection generally occurs far after the 'traditional' security systems have been selected.

The other important issue for PSIM manufacturers is the low valuation relative to investments made. For instance, Vidsys raised at least $13 Million USD through early 2007 and was recently looking for additional investments (see our Vidsys financing update). Vidsys likely has total investment equal to Orsus' acquisition amount. Vidsys will either need to generate significantly more revenue than Orsus or find an acquirer who will pay notably higher multiples or else generate a poor return for existing investors.

Let us not forget that before PSIM was called PSIM, there were a number of pre-PSIM manufacturers who did basically the same thing as today's PSIM companies. Ortega Info Systems went bankrupt [link no longer available] (now a part of a Korean manaufacturer [link no longer available]) while Vistascape was sold in a firesale to Siemens [link no longer available]. The track record is not great and the adoption of PSIM by paying end users still remains extremely small (total number of systems in the hundreds).