NICE - Verint Merger Talks

Israeli and US newspapers are reporting on talks of a mega merger between NICE and Verint that would result in a multi-billion dollar defense contractor. In this note, we examine the potential impact for the combined companies in the surveillance market.

Both have sizeable surveillance divisions. However, those divisions only contribute a fraction of each companies total revenue. As such, the deal may make sense overall regardless of the impact on the surveillance side.

Neither company has kept pace with the overall growth rate of the surveillance market in the past 5 years, with both losing share to companies like Genetec and Milestone in the high end, large scale projects they target. Verint, in particular, has suffered steady declines in their total surveillance revenue.

Bad Fit in Surveillance

Verint and NICE's surveillance product portfolio overlap considerably, with both companies offering VMS / recorders, analytics and PSIM. Worse, neither company has had any major technological breakthrough in the surveillance market for years. Both product portfolios are somewhat antiquated and redundant.

Conceivably, one of the lines for each category could be dropped though that carries its own problems. While dropping a line would reduce cost and potentially increase short term profits, it would be difficult to implement and would cause massive problems with existing customers. Specifically, migrating from one platform to another is quite complex and expensive. As such, we would expect, if the deal went through, that NICE / Verint would muddle along with multiple lines in each category.

The biggest problem is that this deal would not solve any of Verint and NICE's structural problems in surveillance - products that are expensive and lagging market leaders, a closed channel structure that works poorly in an increasingly Internet enabled world and few innovative new products that would drive customer adoption.

Nonetheless, it could make overall financial sense. An Israeli op-ed piece claims that "improved profitability due to synergy" is viable and possibilities of "data collation and interactive analysis systems within enterprises" for their voice side of the business. This may be true but it is unlikely to do much for their video surveillance offerings.

If this deal does go through, we expect it to accelerate both companies marginalization within the video surveillance market.

UPDATE

Since the January 2013 reports, and to April 2013, there have been no additional claims of a merger.