Pelco - A Decade of Decline

Author: John Honovich, Published on May 16, 2016

Pelco's 2007 acquisition for $1.5 billion USD remains one of the largest video surveillance deals ever, even including the industry's recent wave of buyouts.

But the deal, nearly a decade later, has not worked out well.

Now, Pelco has a new CEO and the company is hard charging to turn things around.

In this report, we examined what happened and what Pelco is looking to do to change this.

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Revenue *******

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Valuation **** * *******

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Still ********** ***

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Causes - ** *** ******** *******

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Back ** ****?

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New *** / ********** ********

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*******

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***, ** ***** ** ** **** ** ******, **** **** need ** ******* **** ****** ******** **** **** **** ***** *********** with *** **** *** ********'* ** *** ********.

Comments (12)

Two S's destroyed this company... Schneider and Sarix. Schneider went all corporate and we had around 5 sales people in as many months, and then Sarix just kept going wrong. Well they did for us..

Such a shame, I like the whole Pelco thing and the fact it was modular bullet proof kit... I hope they can get back on track.

Good article. They were slow out of the gate on IP. Then, when it looked like their product was coming back, they made this weird Rep Firm/Internal Hybrid sales model which seemed desperate at the time and has gained no traction in the last two years.

They need to emulate Axis/Avigilon/Hikvision by investing in their own Sales Reps and getting their faces out in front of old and new customers.

From speaking with him, Pelco's CEO has flatly denied any focus nor intention for Pelco to be sold off.

How come there's never a stack of Bibles around when you need them?

never a stack of Bibles

I believe him.

(1) Because of how he said it to me. Usually, if someone is going to lie, they qualify / frame their statement in a way they have an out (well except Samsung). Pelco's CEO did not.

(2) Because they are clearly focused on developing product, which is much more of a sign they are keeping it than trying to get rid of it. If they wanted to sell it immediately, it would be cheaper and quicker to cut R&D, cut costs across the board, push short term sales, and sell out.

I am not saying Pelco won't ever be sold. For instance, if this push with the new CEO does not have traction in a year or two, it could make sense than to sell.

Are we sure they have truely lost $1B? How much net revenue have they earned since 2007? Is it possible they could simply break even in a sale? Even if they did lose $1B in valuation, there had to be net gains to offset that number over 9 years, no?

Are we sure they have truely lost $1B?

I did not claim they 'lost $1B".

I claimed their valuation would be 'Down A Billion'. Think of it like stock, which it is. For example, you bought Avigilon stock at $34 in 2014, it's at ~$13 now. Avigilon's operations are not down 60% but their stock price is, and if you sold Avigilon's stock today after buying it for $34, you'd lose a lot.

Same for Pelco, whether or not Schneider generated profits or operational cash flow over the past decade from Pelco, if Schneider had to sell it now, there'd probably have to sell it for a billion less, ergo the valuation is 'down a billion'.

"There continues to be a lot of rumors about Schneider selling Pelco but, if they did, Schneider would be taking quite a big loss."

I guess when I read the article the first time, I thought it was implied here.

So, how big of a loss willie they be taking if they sell today?

The loss would be the difference from the price they paid ($1.5 billion) to the price they receive on the sale. Insert the price you think someone would be willing to pay for a company with a decade of declining revenues and ~$300 million annual sales.

My estimation is the ~$500 million range for a sales price, which would mean a loss of ~$1 billion.

Can you shed some light on how you calculated an estimated valuation of ~$500 million?

~$500 million Pelco valuation:

Assume ~$300 million annual revenue, track record of revenue decline, limited growth potential.

Historical comparables are in the 1x to 3x Price to sales range. ~1x is for OEMs or bad manufacturers; 2x is for solid companies, 3x is for strong companies.

With that rule of thumb, $300 million valuation (1x) seems low, Pelco has lots of problems but still has a premium, though receding brand. $900 million valuation (3x) seems to hard to justify because of declining sales. ~$500 is roughly in the middle.

Ultimately, companies are worth whatever the top bidder wants to bid, but based on historical comparables and Pelco's revenue / decline, ~$500 million range is sensible.

In my opinion, Pelco has an opportunity to re-emerge as a disruptor in the industry. If they were to launch a truly 100% open platform with products that truly offer value-based features and work on any VMS (yes, I understand that is a two way street), and price their products at a point where the value proposition is compelling (American made/engineered/assembled alternative to HIK, for example), then they could realistically catapult themselves back into a leadership position.

Most integrators and end-users still reflect fondly on the Pelco brand. It could be resurrected, but not with a strategy of "we're like them" where they try to emulate the other main-stream leaders. That horse left the barn when Schneider killed it. We are not going to jump onto a new Endura VMS, that's for sure, no matter how good the story may be. It is now time to re-invent the strategy and embark on a bold new direction where the brand itself is the currently dormant catalyst.

Quality products / best-of-breed customer services / Value / America / Heritage

I hate what has happened to Pelco and the Pelco brand, but you are correct that customer service was one of their primary causes for the downfall. I remember a time in 1990 when I first started in this industry. I was installing a large Pelco matrix system and needed technical support about 2 am EST. I called the Pelco answering service and the call was returned by Dave McDonald himself. For years that was indicative of Pelco's technical support. The last time I called Pelco for support about 5 years ago, I felt like I had called some offshore support center. Sad.

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