(PUBLIC) ESA CEO Speaks On Electronic Security Industry And ESX Show

The Electronic Security Association (ESA) is one of the largest industry associations within the physical security industry, most known historically for the alarm business. Where does ESA see itself and the industry going?

In this report, we spoke with ESA Executive Director and CEO Merlin Guilbeau to learn about the association's position.

For related association coverage, see NSCA Profile: CEO Speaks On How A/V And Security Are Converging and PASS Chairman Interview and School Guidelines Examined.

Executive Summary

A trade association historically made up of alarm companies, the Electronic Security Association (ESA)'s CEO, Guilbeau, said its fastest member growth is video integration, followed by access control. Seventy percent of the association's members have less than 25 employees, including presence across residential, SMBs, and larger enterprise/commercial security systems.

The association said it differs from SIA, ASIS, and NSCA in that its focus is mainly on helping its members grow their businesses, especially through recurring revenue. Specific practices include providing license training, insurance assistance, etc.

Its annual event, ESX, is primarily for alarm-installing integrators, specifically focusing on helping attendees grow recurring revenue through operational improvements. The show is different in that dealers are always involved in most of its 35 panels, and it is designed to focus more on educational sessions than vendor booths. ESX only hosts centralized after-hour events each night, encouraging networking and socialization among all attendees. Compared to larger shows such as ISC West and GSX, mainly held in large cities such as Las Vegas, ESX tends to rotate in smaller cities, such as Louisville.

ESA's History

The Electronic Security Association was founded in 1948 as the "National Burglar and Fire Alarm Association." The association renamed itself the Electronic Security Association (ESA) in 2009. It was first formed when a group of "WWII independent dealers" led by Benjamin H. Call and Morris F. Weinstock gathered together to compete in buying power compared to larger alarm companies, ESA's CEO told IPVM.

Historically, ESA has represented primarily fire and alarm companies but has evolved into covering video security, access control, and other aspects of "low voltage technology" as well, Guilbeau added, pointing out that video integrator members are the fastest growing category, followed by access control, and then fire and intrusion.

Mostly Smaller Alarm Integrator Members

70% of ESA's members have 25 or fewer employees, but Guilbeau indicated that it would be a "misconception" to view ESA's members as "just residential" and that most of them are engaged in "some sort of commercial businesses":

Some folks have a misconception that our members are just residential in nature, but pretty much every member we have is doing some sort of commercial business as well. It could be small to medium size. We have a good blend of membership. We have integration companies on the high end that are doing large enterprise type systems. And then we have all the way down to a small operator who is just probably working the business by himself.

Value For Members: Grow Businesses Through Recurring Revenue

Compared to other trade associations in the industry, Guilbeau said that ESA focuses on "trying to help members grow their business," and more specifically, the growth of recurring revenues the alarm companies have been relying on "over the past 40 - 50 years." In practice, ESA offers its members discounted insurance plans and training for licenses in specific states.

On ESA's insurance plan, Guilbeau elaborated on how it helped its members save costs on insurance:

In 2003, the organization invested some of its reserves into developing an insurance captive program. Over the years, that program led to what's called a risk retention group, where we were able to go to London and secure underwriters from Lloyds of London, who were willing to underwrite the program. So now the program is completely underwritten by Lloyds of London. It is rated with A and best, so we're able to offer them general liability insurance through this program, which has saved them[members] quite a bit of money over the years. In fact, last year, we ran the numbers, and it appears as though we saved our members close to a million dollars just in general liability.

Guilbeau added that ~700 - 800 policyholders participate in ESA's insurance plan, saying ESA members can save an average of 20% through membership discounts. Non-ESA members can also purchase insurance but without discounts, Guilbeau told IPVM.

View on Video Replacing Intrusion Alarms

Even though ESA's membership was historically alarm integrators, video and access are expanding. Guilbeau acknowledged the video might eventually replace intrusion alarms but emphasized that intrusion systems are also going to the cloud and that it has always had the recurring revenue model which many are going after in the era of cloud:

As an industry, we're certainly heading to the cloud. That's here now. I think a lot of manufacturers are moving to technology that offers the opportunity to incorporate some recurring revenue. To a certain extent, intrusions are part of a lot of these interactive services that are offered to telephone apps. We're sending that information to the cloud now and retransmitting that, in many cases, to a central station and or the end user through push notification on their app. Regarding whether video will replace intrusion, I think there's an opportunity for it to do that as technology continues to evolve.

ESA's Annual Event: The ESX

ESA holds its annual event, the Electronic Security Expo (ESX), every June. Its CEO pointed out that the event is primarily for alarm-installing integrators and focuses on helping attendees build their businesses through recurring monthly revenue (RMR). Guilbeau expanded on the list of questions ESX focuses on addressing:

How can we grow the business operationally? How can we grow the business from a revenue standpoint? The focus is really growing and running your business.

ESA's CEO further elaborated on how the show is structured, focusing on educational breakout sessions with integrators always engaged in the conversation:

We have about 35 breakout sessions. They're typically done as peer-to-peer sessions. We might include a manufacturer or service provider as a moderator or if they have a certain level of expertise. We might include them on a panel, but we will always incorporate integrators and dealers around them.

More on Business Growth Education, Less On Technology

Guilbeau clarified that the ESX show is more about discussing go-to-market strategies, not technology:

You won't really see a lot spoken about technology other than how to go to market with technology, how to generate recurring revenue, or how to build a workforce around that technology so you can go to market. The primary differentiator is our [business] educational aspect.

Less Focus on Expo Hours

ESX has two half days of show floor expo, much shorter than industry shows such as ISC West and GSX; Guilbeau said the show's focus is on the education sessions for integrators, and the manufacture expo serves the purpose of meeting integrator's needs:

It is education, first and foremost. And then we want to give them that opportunity to obviously visit with manufacturers and service providers. That's what the expo offers.

Guilbeau said ESX is "self-contained" in having fewer expo hours because it wants the manufacturer to participate in the education sessions with integrators and network with them as well:

We want them to have time on the show floor to talk product, but we also want the exhibitor to be sitting in education sessions next to some of the alarm companies and integrators and learning what their challenges are along with them.

Finally, ESX's CEO mentioned "new entrants" testing channel acceptance at the show floor expo:

We want them to be able to see the technology that's coming out. One thing that we feel is exciting about ESX from the technology standpoint and the exhibitor standpoint, is we get a lot of new entrants that kind of want to test the channel and just see what it's all about. They're able to use our event as an opportunity to dip their toe in and see if this is the right channel for my offering for what I have to offer.

After-Hour Social Events

ESX holds its own networking events three nights in a row during the show. Guilbeau said these events are meant to be centralized venues for attendees to have "longer, better conversations with individuals" and further explained the rationale behind them:

It helps to advance, build, and strengthen the relationships that are started, maybe in the expo area or vice versa. Maybe they start at a social event and then progress with a visit to the expo floor by the attendees. It really is a big part of our overall aspect of the event.

Number one, it celebrates the hard work of many of our volunteers in some aspects. Like the Weinstock celebration, which honors our Maurice F Weinstock honoree. It's not an awards program or ceremony that happens on the main stage where we actually present the award. We do that prior to the keynote speaker. This function is purely a social event where you can come and congratulate the winner, but also network with all the other attendees the the pub crawl is really kind of a dual purpose.

These are just organized opportunities to get the group together and have a place to socialize.

At other shows, albeit larger ones, various night-time vendor events fragments show attendees to various specific events.

Rotating in Smaller Cities

ESX will be held in Louisville, Kentucky, between June 3 - 5 this year. Guilbeau explained why ESA prefers to host ESX in more compact cities compared to other industry trade shows:

Because we're smaller, we love the [more compact] cities, and we love locations where the convention center is in a downtown setting where you can have access to restaurants, and you don't need to jump in an Uber to go somewhere. The hotels are all conveniently within walking distance. If you talk to the majority of attendees, Nashville is their favorite.

ESA's CEO mentioned cost and convention centers' schedules as other reasons for the choice of destination, which was why the team moved away from Nashville:

Nashville has taken off as a convention destination. When we first started in 2008, Nashville was our first location, and we were a little bit of a big fish in a small pond, but now it's just totally reversed. We're a small fish in a big pond, and it's really hard to get back into Nashville because their convention schedule has just exploded. It's also a little bit of a cost factor.

Nashville can be expensive these days with hotel costs. So then we ventured out and looked at other areas.

Guilbeau expanded on how the show has been moving around:

Lately, we've been in Louisville for two years in a row. The pandemic drove that as well because we had to cancel one year. We negotiated to commit to a second year with Louisville. We've done Fort Worth a couple of times, and we've been in Charlotte. Nashville at least three, maybe four times. Baltimore a couple of times. We've tried to move it around.

Industry Consolidating Through M&As

ESA's CEO emphasized acquisitions as a "huge trend":

The huge trend for us that impacts ESA directly, and then impacts the industry and in some ways is the acquisition market, the merger and acquisition, which continues to exceed all of our expectations. Just when you think coming out of a pandemic would slow that down, it feels like it's actually accelerated and we've got some companies right now that are that are really vying for some of the really good companies that are out there in the market.

Indeed, he acknowledged that is impacting ESA as its members are acquired:

The way it impacts ESA is they're gobbling up our members and that creates a bit of attrition for us that we've got to try to offset with new members coming in and so that's a challenge. The companies are heavily involved in acquisitions are buying up companies with strong EBITDA and a huge platform of recurring revenue. They're focused on the good companies and that's impacting ESA directly.

Examples of such integrator rollups include Convergint Aims For $10 Billion Annual Revenue, Everon CEO On ADT Sell-Off And Acquisition Growth Plans Analyzed, and Pavion Aims To Be Top 3 Largest Global Security Integrator (CEO Interview).

ESA's CEO elaborated that since the security industry has had a "good run" in M&As, he sees this trend continuing:

The private equity firms continue to learn about our space, and come into this space. I do think that it's not necessarily a cycle that's going to go away or slow down. It may slow down, but it's going to continue. If you look at history, how many bad acquisitions have really happened over the years? Certainly not as many as you would think. So, I think overall, the industry has had a good run in terms of mergers and acquisitions. And that's just going to continue.

While consolidation is a growing trend, ESA's CEO pointed out that there are also many new entrants emerging, especially as techs or salespeople seek to open their own companies:

My sense is that new companies will rise. We've been saying for decades the consolidation is here, it's happening, and it is, but it's amazing to see how many new startups evolve out of that. Maybe they don't want to work as technicians, and our salesperson might not want to work for a large integration company. They feel like, "You know what, I can go do this on my own. They get licensed, and they start a little business, and from there, they grow it, and eventually they become a pretty decent size player in the market, and they're able to be successful and create a good livelihood for themselves, maybe even fortunate enough to sell it someday when they retire.

For another integrator view on consolidation, see PSA Security CEO Speaks About Integrators Getting Acquired,