NICE Is Out Of the Video Surveillance Business / Now Qognify

By John Honovich, Published Aug 03, 2015, 12:00am EDT

One of the bigger players of the prior era is exiting the video surveillance market.

NICE is selling off its 'physical security business unit' to a US investment firm.

From speaking with both NICE's General Manager and the investment firm partner leading the deal, we believe this will help the new company compete at the high end of the market.

Inside this post, we break down the deal, examining what the investment firm is likely to do and where NICE's ex-unit is headed.

NICE Trying to Focus 

NICE's annual revenue is ~$1 billion, out of that, the security group does less than a quarter of that revenue. And even within security, the video surveillance / physical security unit, is only a fraction of that. Most of NICE's revenue comes from 'customer interaction solutions' / call center, which is clearly more of NICE's focus.

Indeed, in March, NICE sold off their cybersecurity division, another part of their security group, for $117.9 million cash + $40 million incentives. This left, the physical security offerings and their public safety / 911 offerings remaining.

NICE PSBU Price / Valuation

Now, NICE is selling off the physical security business unit (PSBU) for $85 million USD + $15 million potential incentives.

NICE did not disclose exact revenue for physical security, but we estimate the PSBU to be a $50 - $80 million business, given their change in stated revenue expectations and total 2014 security segment revenue.

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We estimate a price to sales ratio of 1 - 2 paid by Battery, the investment firm, which makes it fairly reasonable deal, considering that most of the revenue is from software, not hardware.

NICE PSBU Offerings

According to NICE, their physical offering consists primarily of VMS software, PSIM / situation management software (originally acquired from Orsus in 2009), and video analytics software. NICE says they still sell limited servers and encoders for those that want a turnkey offering. NICE does not sell cameras.

NICE says their PSIM / situation management offering is growing in importance overall and that its share of total PSBU revenue is increasing each year. To that end, NICE is looking to use / sell this offering for more than security, to expand into safety and operational management.

NICE Market Presence

NICE has historically been limited to the very high end of the physical security / surveillance market. To NICE, even their smaller deals are in the few hundred camera range, which for video surveillance, is the high end of the industry.

We do not expect this to change, especially with the increased focus on situation management. Even if NICE PSBU's revenue is in the $50 to $80 million range, we doubt they have more than a hundred new customers per year. Of course, the upside is that NICE is going after deals that are hundreds of thousands to millions each.

The Impact of the Investor Battery

Battery is a fairly well known, prominent investment firm. More importantly, their focus is generating a return based on exits that are multiples of the acquisition price, not maximizing short-term operating profits.

To that end, we expect Battery will help grow their security / surveillance business.

Future Outlook

Inside of NICE, physical security was an oddity and too small to be central.

Now, the NICE PSBU will become its own independent company (the company's new name is Qognify).

Given that their offering and focus will be on the high end of the security / surveillance market, their overall impact will be limited. However, NICE does not have one of the few technology offerings that are well developed for the high end of the market. A fresh independent start could help them.

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