Avigilon Raises $69 Million for Potential AcquisitionsBy: John Honovich, Published on Nov 08, 2013
Hot off doubling revenue, Avigilon has raised $69 million earmarked for 'general corporate purposes and potential strategic acquisitions.' Do they need the cash? Who should they acquire? We explore inside.
[Update: Avigilon raised $100 million more.]
Timing and Dilution
Given the stock spiked ~25% the next day and is now at an eye popping 1 billion dollar valuation, this is an ideal time for them to raise money. While $69 million is significant for the surveillance industry, it is only 6% of their current valuation. By contrast, their market cap was below $200 million when they IPO'ed 2 years ago.
Cash Not Needed Immediately
Avigilon does not particularly need the cash for any immediate operational need. They report ~$34 million 'cash and cash equivalents' on hand as of 9/31/2013. Moreover, they generated $4.6 million in cash from operations during Q3 2013. As such, they are neither burning cash nor short of it.
Avigilon has discussed further ramping up production, but their guidance is that they have sufficient capacity for $500 million in sales (they are at $200 million annual run rate currently) and that further expansion would only have capital costs in the few million range. So that is unlikely to be the driver.
That said, with more cash, they could attempt to grow organically even faster but how much how faster they can realistically grow?
Who will or should Avigilon acquire?
We suspect the most likely use of this cash is for acquisitions.
Earlier this year, they acquired an access control management software provider, RedCloud, to add to their IP cameras and VMS software. So, one, they have shown they are willing to acquire and, two, they have made it very clear that they want an 'end to end' solution to capture as much of each deal as possible.
Analytics is the most sensible target. They do not have any analytics of their own (specifically intrusion/tripwire) plus analytics are more important to larger enterprise accounts (with more cameras and more critical security concerns) and they are still poised to be a next big growth area (certainly with megapixel decelerating as the market becomes more saturated).
VideoIQ makes the most sense to us. They have a strong track record, works well (not a small achievement for analytics) plus they have extensive experience in edge storage (another important area that Avigilon lacks). VideoIQ seems to be doing reasonably well (for the weak analytics market) but they have been around for a long time, and VCs generally want an exit sooner rather than later.
Avigilon paid handsomely for RedCloud (measured in price paid compared to RedCloud's revenue) and with Avigilon's massive valuation (~6x price to sales), I bet VideoIQ would be very tempted at a deal at a similar valuation.
Outside of VideoIQ, there are not a lot of options. Agent VI is certainly one. There are a bunch of small players with questionable track records that Avigilon could certainly get for a very low price (though it does not seem to us Avigilon wants to go bargain hunting here).
Let us know your ideas or thoughts on acquisition targets.