The residential security / 'alarm' market is getting worse, at least for traditional players. Now, one of the biggest lenders in the industry has quietly exited.
In this note, we examine the exit, what is going wrong in the market and how it might get worse.
I guess it's too late to just stick "blockchain" somewhere in your name and raise $$$
If it was my money on the line, I'd probably step back a bit, and wait and see what Ring/Amazon are up to. They're seemingly executing flawlessly so far, and its not hard to imagine them slithering their way into this segment also - and if they do, well, it's probably game over for a bunch of wounded players (either too small, or too big with mountains of debt).
#1, thanks for sharing. I heard that too but had not been able to track it down. We've been a bit swamped the Hikvision / China issues but we are hoping to get more details on this. Thanks again!
I have also heard that Citizens is getting out of the resi deals space. BoA is advising residential customers to find another bank, but is not getting out of the commercial space.
CIBC and CapitalOne, from what I have heard, are not planning to move away from financing these deals though.
According to others I spoke to, CapitalSource had ~$650M out there, and the deals have a prepayment penalty. If any of their current financing customers need to alter terms for any reason (which is not totally uncommon), they are pretty much stuck, as CapitalSource is going to be unlikely to want to extend terms, offering more financing, etc. This leaves those customers needing to seek a new bank, from limited players, and then facing prepayment penalties on their existing loan, making any challenging scenario that needs financing flexibility being that much more expensive.
I would expect this overall to lead to reduced multiples for valuations, and possibly some peaks in M&A activity in this space next year as some organizations are forced to sell if they can't find the capital they need at the valuations required.
I struggle to see how anyone could vote positive on this? Can anyone lay out a case, whether you agree with it or not, on what exactly is positive in the residential space? Other than if you work for Amazon.
Your Poll asked… “What is the future of traditional residential security providers”? We believe…. they are doomed if they don’t embrace the changes in the market. The market itself is a bottomless opportunity, worldwide. The DIY trend will expand Do-It-For-Me. One of the barricades to traditional residential growth is understanding how to do business without the local police as their silent partner. Even SimpliSafe will be learning the same lesson…. SimpliSafe does not own their remote monitoring facilities, and not operate under their own monitoring licenses, and all systems are not remote-witness. They off-load monitoring and license to one of the big traditional third-party sources…. thus recognized as just another security provider with a big advertising budget and lots of puffery. Lots of disclosures if planning IPO. Source: Lee Jones; Support Services Group
It is like everything in life. It goes from an extreme side to another. When there will have a problem with DIY (if there is any) Professional (if there still any) will come back in the market.
In the meantime focus on what it is difficult to do without experience and knowledge.
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Comments (8)
Ross Vander Klok
Wow! The chart goes up to 107%! I would like to see us reach that....
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Morten Tor Nielsen
11/07/19 07:16pm
I guess it's too late to just stick "blockchain" somewhere in your name and raise $$$
If it was my money on the line, I'd probably step back a bit, and wait and see what Ring/Amazon are up to. They're seemingly executing flawlessly so far, and its not hard to imagine them slithering their way into this segment also - and if they do, well, it's probably game over for a bunch of wounded players (either too small, or too big with mountains of debt).
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Undisclosed Integrator #1
BofA and Goldman are also out for financing deals that consist of over 50% resi in the mix.
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Ross Vander Klok
I struggle to see how anyone could vote positive on this? Can anyone lay out a case, whether you agree with it or not, on what exactly is positive in the residential space? Other than if you work for Amazon.
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Lee Jones
11/11/19 05:13pm
Your Poll asked… “What is the future of traditional residential security providers”?
We believe…. they are doomed if they don’t embrace the changes in the market. The market itself is a bottomless opportunity, worldwide. The DIY trend will expand Do-It-For-Me. One of the barricades to traditional residential growth is understanding how to do business without the local police as their silent partner. Even SimpliSafe will be learning the same lesson…. SimpliSafe does not own their remote monitoring facilities, and not operate under their own monitoring licenses, and all systems are not remote-witness. They off-load monitoring and license to one of the big traditional third-party sources…. thus recognized as just another security provider with a big advertising budget and lots of puffery. Lots of disclosures if planning IPO.
Source: Lee Jones; Support Services Group
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Jonathan Morin
It is like everything in life. It goes from an extreme side to another. When there will have a problem with DIY (if there is any) Professional (if there still any) will come back in the market.
In the meantime focus on what it is difficult to do without experience and knowledge.
Create New Topic