Cloud Physical Security Is Transformational, Says Banker John Mack
For decades, John Mack has facilitated many of the biggest deals in physical security. Now, he sees this upcoming decade, with the rise of cloud physical security, as being transformational.
We interviewed John Mack, managing director at Imperial Capital, to understand their outlook on the industry's transition to the cloud and upcoming investment environment for cloud and SaaS-related businesses.
This is part of a series on the future and financials of the market, also see:
- 2030: The Coming Dominance of Mega Cloud Physical Security Providers
- The Remote Video Monitoring Market: View From Banker Alper Cetingok
- VC Firm Sapphire is Looking to Invest in Video Surveillance Startups
- James Rothstein Speaks On Investing in Integrators
Executive *******
********* ********* *** ** **** ** the ******** ********** ** *** *****, Mack ****, **** *** ******* ** the *** ***** ********, **** **** mature, ********* ** ** $*+ ******* annual ******* *** **%+ ****** *******.
***** *** ******* *********** ******* ** more *********** ***** **** *** ***** ago, ********* ** ******** ********, ********** with ***** *** **** **********, "** doing ******" **** ***** ****** *******, Mack ****. ****, ***** ******* ********* will **** ** **** ********* ** the ******* ****** ** *** ****** years, **** *********** ***** *** **** businesses, **** ** ***** *** *** Brivo, **** * ****** ***********.
SaaS *** ***** ************ *** ********
*** ******** ******** ******** ** ****** away **** **-*******, ********-***** ******* ** a **** ******** ***** ***** ********* spend ********* ******** ******* ** * big, **-***** ******* **********, **** ****:
** *** ****** **** ***** ******** models **** ******* **** ********, *** premise-based, *******-********** ******* ** *** ********'* premise ** ****** ******* *********, ***** the ******** ********* ** **** ******.
*** ******* ********* *** ******** ** doing ** ** * ******* *******, a **** ******** ********, **** ** a **************** ****** ** *** ********. It ***** **** *** ******** *** the ********* *******. **** ***'* **** to **** * *** ******* ********** and *** *** ******** *** ******* and **** *** ** ******* *** system.
**** ************** ** ***** ****** **** premised, ******-***** ******* ** *****-******* ******** as ** ********* ******* *** ********** security.
***** ********* **** **** ****** ****** rates *** ****** ******* ** *** coming *****, **** ****:
*** ****** ***** *** *****-******* ******** and **** ********** **** ** ****** over *** **** **** *****.
*** ****** *******, *** ******** *** be ****** **** ***** ******** ******. The *** ** * **** ******** can ** ** * **** ****** gross ****** ********, *** ********** ****.
**** ***** ***** **** ****** *** non-SaaS-based **********, **** *****:
**** ********* ***** ******* * *** of *********** *** ****** ** *** cloud-managed ******* ****** *** **** ****** for ***** ******** ******.
Large ******** ******** ********* ******** *** *****/**** *****
**** *** ******* ** *** ******** security ****** **** ******* **** ***** and **** ***** ******* ** *** into *** *****/****-***** ********** *** ************. Mack ********** ** *** ******** ** has ******** ** *** *****:
** ***'** *** ** ***** ****** companies ******* ** **** ***********, ********** that's * *** **** ** **** you ***. ****'* **** **'** ***** in ******* ** ****** ***'** **** these *****.
*** ** ***** ******** ***** *******.*** ****** *******. *****.*** **** *** ************* ** the *** ****** *** ******** ******** and * *****-******* *****.
******** ******* **** ** *********** ** this ******** ****** ******** ********,***, *** ******. ***** *** ****** of ******* ****'** *** ******* ** make **** ** *** ************, **** have **** * *** ***********.
****, *** ************ ******* ******** **** ****** ****,******** *******.
**** ********,***** **** ******** ** *****. ***** *** **** ****** *** players ****** * *** ** **** trend.
Biggest *******, $*+ ******* **********
** *** ****** *******, **** **** the ******* ******* ** *** ***** physical ******** ***** **** ** $*+ billion **********, *** **** *** ****** out ** ***** ******** ********* **** have ******* **** *** ***** ** a ****** ******* **** *****:
* ***** *** ******* ******* ** this ******** **** ** $* *******-******-**** businesses. ** *** *** **** ********** in *** ******** ** ******** *****
** *** **** ** ***** ********** that **** *********** **** *****-******* ******* models *******, *** *** **** ******* big ********** **** *** ******** ****. Salesforce, ******** *******, *** **'* * long, **** **** ** ********* **** have *******-****** ******* *** ********** ** other *******. **'** ** ** ******* that *** ** ****** **** ****. ERP ******** ** * **** ****** sector **** ******** ********. *** **** said, ***** *** **** ** ******** of *******-******-**** ********** *** ****, *****-***** business ******.
Cloud/SaaS ********* **** **** ****** ******
*** ***** / **** ********** ** the ******** ******** ******** **** **** 50% - **% ***** ******, ********* in **** ******** ********** **** **** that **** **** *** "**** ******** models," **** ****:
*** ***** ****** ** *** ****** margin *** *** *** ****** ** well ***** ** **%. ** **** of ***** ********** [**** *** **] up ******* **% ** ****, ****'** oftentimes *** **** ******** ****** ***** the ***** ****** ***** ** ** high ** **% ** ****, *** there's ********* **** ****** ** ***** margin *** *** ****** ** **** north ** **%.
******-***** ********** **** **** ** ******** a *** ** ***** ******* ** growth *** **** **** **** * lower ****** ******:
*** ***** ****'* ********* ***** ******* at ****** ** ***** ***'** ***** in ****** ****, ** * ******* business ******** *****-******* ******* ******, ***'** typically ********* * *** ** **** sales ***** *** *&* ** ***** out *** **** **** ****** ******** and ** ***'** *** ******** ****** EBITDA *******.
25% ****** ****** **** **** ******** ******** ********* ******
*******, **** ***** ********* ******, **** should ** **% "** ******" ** EBITDA ******, ** ***** ********** ******** the **** ***** **** **** **** play *** *******, ********* ** ****:
*** **** ****** ********** ** ***** business ******, *** ****** ******* *** be ************* ******.
* ***** * ****** ******** ****'* a ********** ****** ** **** ******* with ************** ********** *** * ****-*********** customer **** ****** **** **% ** better ******* ****** *******.
** *** **** ** **** ****** SaaS ********** *** ***** **********, ****'* what *** ***. **'* *** ************. It's ****** **** *** ********* ***** point **.
*** ******* ********** ** ********-******* ******** security ********* ******** **** ****** ******* in *** ***** (*.*., ****, ******* F&S, ***.), ** ****, ** ********, would ** ************* ******.
Hardware ********* ************** **** ** ******** ********
*** ******** ********* ** *** ******* difference ******* *** ******** ******** ******** and ***** ********** ** ***** *** SaaS *****. *** ********* ******** ***** in ******** ******** *****/**** ********** ***, in ****, "**** **********" ** ********** recurring ********/******* *******, **** *********:
*** ***** * ***** *** **** differentiates *** ******** ******** ********** ** [that] **'** ***** ** *** ****** in *** ******** ******** ******** [***] hardware-enabled ******* ******. ***'** ****** ****** going ** **** **** **** ** hardware ******** ** ***** **********, *******, in *** ************* ********, ***** *** lots ** ******** ****** **** ******* no ********.
***** ** * *********** **********. ********** like ***** **** **** ****** ******* on ***** ********. **** ************ **** the ******** *** *********** **** *** ability ** ****** ** ******** *** ARR ******* ******.
***** ***** **** **** ******** ******* on ******** *** **** ****** ** well, ********** *****. *** *******,*****'* ******** *** *********** * *********** *******.
Security ******** - **** ** *****
*** ******** ******** ******** **** ****** to ***** *** *****/**** ***** **** other ********** ******* ****** *** **** conservative, **** ****. *******, *** ****** is ******* *********, *** *** ***** is "**** **** **** *********," ** emphasized:
**** ******** *** ***** **** ****** to ***** **** ******** ****** **** most ***** **********. * ***** **** has ** ** **** *** **** that ********** ******** *** *** ******** model ******** ** ******** ******** *** generally ******.
****** *** **** ********* ***** *** nature ** *** ******** ****. **'* not ********* *** *** *** ***** when ***'** ****** ** ******* ******** for ****** *** *********. *****'* ********* more ************ ** ******** ********** *** timeframe *** ******** ***** ******, *** that ****** ** **** **. **'** well **** **** *********. ** ********** will ** ****************.
***** ***** ******** ******** ********* ******* in *** ***-***** (*.*.,**** ****), ** *** **** ** *** last *** ***** **** ***** ********* have ****** **********.
Full ************** ** **** ** **-** ***** ** ****
**** ******* * **** ********** ** the **** ***** *** *** ******** security ******** ** *** **** ** to ** *****, ** *** ****:
* ***** ****** ********* **** * server *******-***** ****** *** ******** ******** and ****** ******* *** ***** *** otherwise, **** *** **** ** ** 20 *****, ** *** ** ***** or ****, ** ***** ** ****** to **** **** ** ****-******* ******* model. ****'* * ****** **************** ******.
*********, **** ******** *** ***** **** become ************ ******** **** *** **** 5 ** ** *****,****: *** ****** ********* ** **** Cloud ******** ******** *********
Capital ******* - ********* *** *****-***** ********* *** ****** *** *********** ****
*** "**************" ** *****/**** ****** ** indeed ********* ** ******** ********. *****, the ******* *********** ** *** ***** is **** *********** *** ** ******* economic ******, *** ********'* ******** ******, and ********** *********' ***************.
**** ********* *** *** ******* ******* environment ** ***********, ********** *** *******, early-stage ********** ******** ** * ***** ago, *** *** ******** ******** ** doing ********** ****** **** ***** ****** segments:
*** ******* *********** *** **********, ** general, ** ************* **** *********** ***** than ** *** *** ** *** years ***. ** ****** *** ******** about *** ****** ** ********* ** cloud ** *******-***** ********* ** ****, we've ********* **** *** ** **** kind ** **** ********* *** **********. That's ****** ** * ****** *******.
*** ******* ***********, ************ *** *******-***** businesses, ** ******* *****, **** **** a ********* *********** *** ****** **** the *********** ** ************ ** *******. On *** ******** **** ** *** ledger ** **** ********** *** ******** security ********** **** ***** ****** **** most ***** *******, *** **** *****'* particular ******** ** ***** *** **** business ****** ****** ******** ********. ****'* the ******** ****, *** ******** ** valuations * *** ***** ***, ********* lower *****. [*******] **'** ***** ***** better ** * ******** ***** **** most ***** *******.
***** ** ** ***** ** ** a **** ********* *********** *** ******* companies, **** *** ***** ** *****/**** in *** **** *** *****, **** thinks ***** **** ** ****** ************* for **** *********** *****/**** *********, ******* *** ***** *** (*** ******)**** **** ** ******** ******* **** year:
*** ******** *** ******* ***** ******** security ******** ** ********* ***** ** be **** ********* *** *** **** couple ** *****. **** ******** ** still ***** ****** **** ***** *******, but * ***** ******* ********* **** are *********** ****** ***** *** **** to ***** * *** ** ****** customers *** ***** * *** ** develop *** ********** *** ***** ** have * ******* **** **** *** investor *********; *** ********* ******** *********.
* ***'* ***** **'* ***** ** be ** ****** *** ***** ******* companies. **** ********* **** *** ******* companies **** **** ** ********* **** will **** ** *******. * ***** anybody **** * **** *********** ******** has * ****** *********** ** **** environment, *** ****'* ******* *** * think ***** *** ***** *** *** such ** ********** *********** *********** ** the ***** ** * ******* ******.
Cloud/SaaS ******** *********** ********* ********** **** **** ****
******** *** ******, **** **** **** transaction ********* *** *** **** **** down ** *** ****-**** **** ** ~6X *** ** ******* ** **** the "*****" *&* ****** *** ***** ago:
**** ** ** ***** *** *** before, ***** ********** *** ****-**** ***** lines ******* *** **** *********** **** around **** ** *** ***** ****** recurring ******* (***), *** **** ****** got ** ** ** **** ** the *** ***** ** *** ****. We *** ** ********* ** **** through ****.
** *** **** **** **** ****** to *** *****, *** ****-**** ****, maybe * ****** ****** ** **** sectors **** ************* **** *** ************ strong *******. *** **'** ******* **** back ** *** ****-**** **** *** SaaS ********** **** * ****** ***** market ** *** *** ***** ***** ago.
*** ***** ****** ************ ******* ** still *********** ******** ** ********** ***** points ** ********-**** ********* **** **** commonly ** *** ** ** ** revenue ***** (*.*.,***** *** ******** ** ~**,******** ** ~*.**, ***.)
**** ******** **** **** ** ***** who *** ******* ******* ********** ** 2023 ***** ****** * ********* ** the **** ***+ *** *****. **** responded **** ******* ***** **** ** be **** ********* *** ****** *** valuation *********** **** *** **** *** years:
******* **** ** ****** ** ** more *********, *** *** ****** *** been ************* *** **********. ********* ****** kinds ** ************ ***** ***** ********* expectations, ****'* ******** **** ******** ***** news ******* * ***** ******* ****** into *** *** *** ** **** has * ****** **** ***** **** valuations **** ******* ****** ************* ** the **** *** *****.
***** ******* *****, ** ** ***** this ** * ****** ** ************ being ***** **** ****, ** ******* delay, ****** *** ****** ****** *****.
Investor ********* - *****/**** ** ***** *** ****** *******
*********** **** ***** ** ************* ** the ***** *** ****-******* ******** *****, Mack ********** ** ******* ********* ** sees ******* ******** **** *********. *****, he ********* **** ********** ** ***** and ****** *******:
***** ** ****** ***** *******, ********* the **** ******** ******, *** ** every ***** ** *** ********, ***** generally *** **** ******** ****** ******* to **.
****** *******, *****, *** ********* ** access ******* **** *** *****-******* ******* offerings, ** ********* ****'* ******* **************** attention.
Investor ********* - **/********* ***********
**** **** ******* ** ********** ********* in *** "***********" ** ** *** analytics ****** ********* ********* ** ******** security:
** *** **** ***** ********* *** AI ***** ****** ** *** ***. But * ***** *** **** ** is *** ** *** ** ****** a ********** ********. * ***** **'* AI ******* ** ********** ** *****, access *******, ********, ** *********, ***** you're ***** ** *** **** ******** itself.
********, ** **** **** ****** ** video *********-**** ********* **** ********* ******** to ***** ******-***** **********.
Investor ********* - ****** ***** **********
*******, **** ********* **** ****** ***** monitoring, ******* *****/**** *****, **** ********* investors:
******* ****** **** *'* **** [** mention **] ****** ***** **********. ** have **** **** ******* ******** ** remote ***** ********* ***** **** ** the ***-***. *'* **** ******* ** remote *****, *** *** **** **** [it] ** * *****-******* ******* ********, and * *** * *** ** growth ** **** ****** *** **** of *** ********* ************ **** *** have ** ***** ** ****** ***** systems.
Investor ********* - ******** ******** **** **********/******
**** **** ********* ********* ** ******** businesses **** ********** ** ****** ************:
******** ********** *** ******* **** *** transformation ** *** ******** ** ******* in ***** ***** ******* **** *** ability ** *** ****** *********** *** other ********** *** ***** **** ****** methodologies *** **********. *** **** **** we're ******** ** *********** ***** ** an ***** ****** ** * ******* wallet ** * ****** ******. *** of ****'* *********, *** ******** ** attracting * *** ** **********.
Proprietary ******** **** ** ****************** ****
***** *** ********** *****/**** **********, **** said **** **** ****** ***** **** "generic ********" *** **** ******* **** software/cloud ********, ** ****** ********* **** proprietary ******** **** ** "****************** ****":
* ********* ***** ********** **** ****** good, *********** ********** **** ** **** suited ** *** *********** *** ***** to ** ****************** ****.
* ** *** ********** **** ***** be ***** **** ******* ******** *** have ****** **** ****, *****-******* ******* models. **'* *** *********** ***** ** work **** ***. ******* ** *** have * ****** **** ******* ******** and ********** *** *****-******* *******, ***'** still *******, * *******, ** ******** a *********** ********* *** ********** **** that *****.
********** ***** "******* ********" ** *** SaaS ******** ******** ***** ******* ***** Eye *** *******, ***** *** "***********" ones ******* ******** *** ***** ******.
******* *********** ******** **** **** ******** higher ***** ******* *** **** ****** valuations ** **** ******** *** ********, Mack ****:
*** ** *** *****, *** ******** security ******** ** ***** ** ** characterized ** ********* **** **** **** hardware-enabled *****, *** * *****companies **** ****** ******** **** *** ******** ****** ***** ******* ** ******* **** *********** ******** *** ***** ** ** ******. They're going to get better overall valuations across hardware and services.
Incumbents' ************* *** **********' *******
**** ***** ********** ** *** ******** security ***** **** *** ** **** the **** ** ****** ******* ** cloud/SaaS, **** ****, *** ** ******* to *** **** ***** ** *** next *** *****:
**'* ********** ** ** **** ***** doesn't ****** ** **** **** **** investment ** ******** *****-******* ******* ******** and ******* ********* *** **** ** these ****** ********* **********.
* ***** ******* ***** **** ** more ***** ** ***** **** **** the **** *** *****.
**** ******* ** **** ******** ********* large **********' ***** ******* ** *****/****. The ***** ** *******'* ***** ********* would ** ********* ***** ****** ********* to, **** ****:
******* ** ** *** ****** ** selling *** ********. **** **** * relatively ****** ***** ******** *****. ********** whoever's ***** ** *** **** ******** is ***** ** ** ******* ** that ** *** ** *** **************** changes *** *** ********** ***** ******** would ** ** ***********.
*********'* **** **** ******* ** ******* attempt ** *** ******** **** *****/****, Mack ****, *** ** ** *** completely **** ***** *** ******* ** and ***** ** ** *******:
********* [***] **** *** ******* ** build *****-******* ******* ******. ********, **** hasn't ****** ** **** ** * think **** ******** ** **, *** I'm *** ********** **** ***** ********* is *** **** ********* ******* **** Milestones ** ***** ** ** ** their ***** *** **** ******* ** going ** **. *** *******, ****'** making **** *********** *** ***** *****.
*** **** ** *********'* ***** **********, see********* *** ****** ** *** ****** Of *****.
**** **** ********* *** ******* **** toward *** ***** **** ****, *******, Honeywell, *** ***:
********, *****, *** **** ** * modest ******** ** *** ***** ***** and *** ***** ****** **** ****'** going ** ******** ** **** ** that ********** **** ************ **** *** next *** *****. **** *** *** most **** ** ***** **** ** a ******** ******, ****** ******* *** very **** *******. *******, **** **** not ******* ************ ******* *** ****/***** model. **** ** *** ****** *******, Honeywell *****'* **** ** **** **** the *****, *** *** ****'* **** as **** **** *** *****.
***** ** ****** ** *********** *** incumbents ** ****** ** *** *****, and ***** **** ** **** **** movements, **** ********:
*****'* ***** ****** ** *********** *** those *** ********** ** **** **** advantage ** **** ******* *** ******* migration ****'* ***** **. *** ***** is ******** ******** ** *** *********** players ***** ***** **** ***********. **'* time ** ****** **** ** *** get ***** ** [** **** ******* behind].
**** *** *** ** ******. [***] question [**] ******* ****'** ***** ** invest *** *** ***** ** ** it *********** ** ******* ****'** ***** to ** *********. **'* ******** ***** to ** **** *********** ** ****.
** *** ********** ***'* **** ***** pre-emptive ********* **** ***** ******** **** and **** *** ****, **** ****** shares **** ** *****, *** **** will ** ****, **** *****:
**'* * ***** ***** ** *** worlds ****. * ***** *** ****** companies, *** ****** ********** **** *** customer *****, ** **** **** ************ to **** ********* ** **** *****, it *** ** * **** ******* to **** ******* **** **** *** pre-emptive ****** ** *** ******** ** go *** *** ******** **** ***** existing ********* ****.If, ** *** **** ** *****, **** ** ***** ****** ********* *** *** ***** **** ***, ****, **** ********'* ***** ** **** **** [******] ***** **** ****, *** **'* ***** ** **** ****. [emphasis added]
**** ***** ********** *** ****** ** the ******* "**********' *******," **** **** *** ******* ********* the ********* ********* ***** ********** *** in:
*** **** * **** ********* ****, and ***'** ********** **** ******* **** your ********. *** ** * ******, you're ***** **** ****** ** ***** a *** ** ***** ** ******* and ********* *** ******* ******** ** your ******** ******** ****.
*** **** ** *** **** ** spend ** ** *** *** *********** compete ** ********* **** ******** ******** base ****** ********** ** ******* **** existing ******** **** *** *** **** attractive ******* **** ***'** ******* ** build **** **** *****? ****'* *** challenge.
**** ** ***** ********** **** **** investors **** **** ****** **, *** how **** ****** **** ************* *** balance *********** **** ** *** "*********" in *********** ******* **** *** **** advantage ** **** ******* ************** ** the ***** *** * **** ******** model. **** **********:
********* *** ***** **** **** ****** pressure. ****'** ****** * **** **** justifying ** ********* ****** *** **************** investments ** ***** ******** ** ****** opportunities **** ****.
* ***** ***** **** *** **** forward-leaning *** [***** ***] ******** *** their *********, *** **** ********* **** usher ** *** **** ***** ** opportunity *** ****** ** ***** ******** and ****** *******, *** ***** ** get * **** **** ********* **** this.
**'* ****** ***** ** ** * separator. **** ** ***** ** ******** well-performing ********** **** ***** **** *** not ***** ** ** ** ****.
Incumbents *** ******* ******** **** **** ** *** ** *** *****
**** **** **** ***** ***** ********** such ** ******** *** ****** ****** in *****/**** ******** ********, ******* ****** companies *** **** ********* ** *** space:
*** *** ********* ******* **** ** at ***** **** ** *** *********** market ******* ** ***** ** ******* this **************, ********* **** ******** *** acquiring ********* **** ***** ********** ** accomplish **** *********.
* ***** ******* **'** ******** ** see *** ****** ********** **** ** do ****. *** ** *** **** time, **'** ****** ******* ****** ********* competing **** ** **** **** *********** in **** ******.
* ***** **** ****** *** **** mature ********** ** ***** ********** ** private ****** ***** *** **** ** upside **** ** *** ****. *****'* going ** ** * *** ** private ****** ******** ** *****-** ********* in ***** *********.
******* ****** ********** *** ******* ****** companies, ***** **** ** * ******* percentage ** *********** ********* ****** **** other ********** **** *** ******* *********** in *** *****:
*****'* ***** ** ** * ******* percentage ** ********** ****** **** ***** industries **** *** ******** ** *** industry **** *** ** *********** ** integrate *** ********** **** ******** ******** into ****** ********* ***** ****** ** building ********** ** **** **** ** other ***** ** ******** *************.
Guides ** ******* ********* ***** *** ******* *********
******* ***'* ******** ** ***** ** make ** **** **** ********** ** the *&* ******, **** ****:
*****'* * *** ** ** **** for ******* ************ *** ***** ************* to **** **** ******** ** ** at * ****** ***** *** ** be **** ********** ** *** ******.
**** ***** *** ** ******* *** partnerships, **** *****:
** ** * **** ******* ****** in **** ****** ****** ** ******* acquisition ******** ** ******* ** *** M&A ****** ***** **** *** ***** ago.
* ***** ********* ******* *** *** to ***** **** *****, *** **** might **** ******** **** *********** ************ with ***** ********* **** *** ** the ********* ***'** ******* **, ** achieve **** *********.
* ***** **** * *********** ***** to **** * *** ** **** scale ** ***** ** ** ************ important ** **** *********** *** *** smaller *********.
***, * ***'* ******* *** ****** this -***** *** ********* ***** ****** *** Stop ********** ** ***-***** ******** ******
***... ****** **, **** *** *****. However ******** ******* ***** **** * very ********* ***********.
****** **** ****, *** ******* **** of **** ***** ****/*******/******.
**** ** ****’* *** *** **** observations *** *********** ******* ** ************ ****** **** ** ** ****** police ******** *** **** ******* ***** systems;… *** *** ****** ** ******** RMR ****** ******. **** ********?