UTC, Owner of Lenel, Acquires S2

Wait, wasn't S2 supposed to be Software House 2; now it's Lenel2?

Does anyone have any idea how the Lenel people feel about this?

The Casi precedent is a fascinating wrinkle here.  When Casi was ended, UTC/Lenel lost a significant install base because they didn't migrate those customers well.

The prospect of this being repeated with Lenel is worrisome, right?

From an integrator stand point this could be really frustrating. When UTC acquired GE the GE dealers typically by default could sell Lenel and vice versa. Difference being GE wasn’t really being pushed near as much at the time.  I guess it depends on how the market plays out and who gets to sell what. I know I have personally gotten tired of the supposed “protected” channels from manufacturers as more lines have either started selling to either anyone who signs up or even end users or both. 

First, Congratulations to Mr. Moss and the entire S2 organization. They have built a fine product and have for years executed an excellent plan for growth and above all remained focused on their roadmap and vision.

My initial thought centers around the integrators that will be affected. I'm sure there are many cases globally where a S2 shop and a Lenel shop competed for the same customer base. If this becomes a combined offering from UTC (like the GE/CASI Products) which integrator is chosen as the lead? Someone always becomes "the chosen one" in a area and the rest are left to fiend for themselves.

Second thought would be who takes the lead as far as field sales. Surely they could not support dual sales roles for long. Certainly going to be some interesting times ahead with both companies.  

S2 was one of the few sizeable independent access control manufacturers.

What does independent mean in this context, not owned by a large conglomerate?

But will there be a S3? :)

I have a feeling this could go similar to the Tyco Exacq buyout. Pushing Lenel as enterprise platform and S2 as an alternative.

F***.

Its more important to know what the planned product roadmap will be for Lenel/S2. Generally speaking, S2 is easier on the small/medium scale while Lenel is stronger on the large scale, so I can see a time where both products are targeted at different customers. Also, UTC has their own Ultraview VMS (sold a lot in the Middle East and Europe channels btw) so it could replace S2's tie-up with Exacq.

Wow, this should be fun .... this is the first acquisition in a while where the two companies had the exact same target applications and markets, for the most part.

I agree with a prior poster's comments about some of the reasoning being that UTC needed a strong Cloud-based offering in order to keep pace with the likes of Allegion and Assa Abloy, who are starting to really focus on organic Cloud solutions (ex.> Allegion's purchase of Isonas for their PureAccess Cloud platform).

Isonas is no S2, but the reasoning remains the same, i.e. the smaller, more nimble access control companies have been focused a lot longer on Cloud solutions than the biggies like Lenel and SH.  You can't just slap an overlay onto an existing server-based (on-premise) system and expect it to keep up with a true cloud-based system that was designed with a hosted architecture in mind.

I would expect the newer entrants with cloud platforms that were formed by or managed by ex-Lenel and SH guys are all thinking this is a good time to be acquired.

I would expect Feenics to be looking for a deal ..... again, they are no S2, but they have an established cloud solution that is right there and waiting to be picked up relatively cheap as opposed to having to start all over from scratch in-house.  

Assa Abloy still needs a cloud services ACS. 

Perhaps we are not seeing the forrest for the trees.  Maybe this isn't a software/enterprise play, but a panel play.

S2 has their own hardware...the "S2 Nodes".  They have a high end feature-set that rivals the Mercury panels.

I think that Lenel bought S2 in order to have decent panels that they own, rather than re-selling Mercury.  The OnGuard vs. NetBox software issue could be just noise.

Although UTCfied doesnt have the same ring to it as Tycofied, the perception will be the same. I think this will be an opportunity for smaller independents to take marketshare;  Open Options, RS2, Vanderbilt, Ghalleger, etc. since it is the SMB solution that is being blackholed, not the enterprise one.

Two Lenel employees expressing excitement about the deal,in response to a concerned consultant:

UTC management is likely talking this up as being good for both Lenel and S2.

I love the S2 product and now I'm scared for it. I don't want to see it get Pelco'ed.

A comment on LinkedIn about this article and disagreeing with our belief that S2 may supersede Lenel over time:

John, I truly believe you couldn’t be further from the truth with your article. There is absolutely no sense to your vision of UTC migrating customers off of OnGuard and onto the S2 platform. Lenel has long been the leader in the large systems and enterprise systems sector of the access control industry. They also pioneered the non-proprietary and open-platform concept that quickly catapulted them to the dominant leading position. Why would UTC go away from the highly trusted and utilized and successful platform to move to S2. S2 Netbox is a very solid platform in its own right but to say that there would be a mass transition to the proprietary S2 platform just does not seem well thought out. Yes, S2 can utilize Mercury panels but with a limiting feature set. The Mercury panels are the most widely used access control panels in the industry and people like having the flexibility to convert to another Mercury based system, such as Access Expert, should the relationship with Lenel go bad and vice versa. The fact that companies can choose from over 20 strong contenders that utilize Mercury hardware without having to do a complete forklift upgrade is a huge benefit and one that is not going to go away.

As for why UTC would move away - (1) they have struggled developing Lenel for a long time and (2) S2 is a much more modern platform with much faster development. There is no doubt that Lenel was an 'innovator' in its day, but that was a decade ago.

Looking ahead to 2025, e.g., does UTC really what to drag the shell of Lenel or would it better, to over the next 5 years, migrate to S2?

John, It is obvious that you are not up to date with the technology updates which Lenel are bringing to the market. Please familiarize yourself with the recent developments and then comment. Besides, the benefit behind the acquisition is very well studied and wisely decided by UTC management, which you personally could not observe or even understand.

UTC has not once demonstrated an ability to innovate to the degree required in the security marketplace

Thus, acquiring innovative products is their best option to remain current

10 years from now, S2 will have had its best days behind them, grow old and die after a good run

It seems that there is a large trend towards consolidation in the industry. Think of all the companies gobbled up by big players.

JCI/Tyco, HID, and UTC all seem to be doing this.  The reason might be less towards solid synergies or strategic growth, and more towards needed to show increased revenue to improve stock performance.

The security industry has a lot of players.  Most big companies have installed systems.  How do the big players grow revenues? They can:

1. Displace existing systems, which is often difficult, costly, and takes a long time.
2. Win new business, which is limited and dependent on their integration partners.
3. Purchase existing lines, which bumps revenues immediately.

The further benefit of #3 is the perceived "consolidation" effect where financial guys say to eliminate engineering, support and admin staff from the incoming purchased company, so this looks good on the books as well.

The problem is that the purging of this staff ends up affecting the partner and customer base in negative ways as the "trimmed" departments are now overloaded.

As an anecdotal case, a friend of mine reported this exact pattern happened with the UTC acquisition of N2 Imaging Systems in the aerospace division.

Here's hoping that with this acquisition, UTC keeps both Lenel and S2 not only viable, but as strong relevant companies. We have invested significantly in both creating interfaces from their APIs to our handheld badge readers.

David

I have experience with both Lenel and S2, though a lot more Lenel experience that S2. 

There are a lot of comments about what UTC did to Casi. Really, I think that GE drove CASI into the ground. The acquisition of GE security was more about all the other products and not about Casi. Lenel got saddled with doing something with a bad situation. Lenel handled it poorly. But we all got Mercury hardware that will replace the Casi hardware and a number of software choices for whose head end to use.

I do think the panel aspect is something to consider. Nobody knows what HID Global will do with Mercury. HID has, for the most part, continued to update and develop new products for the companies they have acquired. When looking at the really big picture, what value do you assign to having a backup hardware platform? 

I am not aware of any patents or copyrights that S2 holds. Are there any? Is that part of the bigger picture? 

How much of Lenel is the government segment? How much of the technology being pushed by the government - OSDP over Wiegand, higher levels of IT security, PKI-at-the-door - will get moved into S2? Was it less expensive to purchase S2 and incorporate the new technology for the SMB market, rather than trying to get OnGuard to fit into the SMB market? 

Is there functionality, chunks of code, that can moved from the S2 web-based platform into OnGuard? A browser-based client for badging and video monitoring? Is there value in the S2 Magic Monitor? 

What is S2's global market? Will UTC be able to push S2 around the world and find increased sales in areas that don't have a product with S2's background? 

Will UTC use S2 as the platform to go after Brivo?

I have heard that there is a relationship between S2 and Blackboard. Is UTC looking to use S2 to make a much bigger play into the higher ED market? Perhaps a place where Lenel integration experience and S2 integrations with Blackboard will come in handy? 

I don't think a purchase like is typically done for 1 reason. I think there are a number of factors and that when all the factors are all weighted together, the purchase makes sense (to somebody). But we don't know what all their motivations are. 

Acquisitions are indeed done for multiple reasons.  No one has mentioned that if John was for sale, and UTC did NOT buy them, then a strong competitor might have.  So maybe the deal was done to control the future battlefield.  Done all the time.

As to S2 replacing Lenel, it will be a long hard row.  Lenel is truly enterprise, and truly aged.  But S2 was designed as a mid-market system, and despite John's claims that it has no upper limits, its inherent design is not enterprise, and was never intended to be.  I predict that buying S2 gives UTC a product line for the mid-market that Lenel could not achieve without cannibalizing and upsetting their existing dealer base.  Remember Lenel Lite sold through other dealers, and that disaster?

I think sales people like Lindsay O'Leary (their SMB champion) are truly excited, because their forays into the lower market has been really tough.  Keeping that new round of smaller integrator out of Enterprise Lenel customers was really tough.  Now they have a 2nd platform.

But as everyone has said, we will see if they can make it happen, or screw it up, again.