What If Axis Acquired Genetec?By John Honovich, Published Jul 16, 2014, 12:00am EDT
The shocking acquisition of Milestone by Canon and the rapid ascent of 'solution' provider Avigilon has increased questions about the viability of independent manufacturers.
The two best known and largest of these independents left are, on the camera side, Axis, and the VMS side, Genetec.
What if these two combined?
In this note, we break down the fit, benefits, risks and likelihood.
A Powerhouse Combination
We believe that an Axis / Genetec combination would be an extremely strong competitor, and would strike fear into solution providers like Avigilon, Tyco, etc.
Both of these companies are the technology leaders in their respective segments and would create an unmatched offering, especially for mid to large scale users.
Increase Sales / Efficiency
While customers, consultants and IPVM regularly advocate for open independent providers, the financial reality is that 'solution' providers make more money. Not only can they sell more products into accounts, they have a stronger lock on to the accounts they have.
Strengthen Technical Performance
Genetec and Axis are typically early in supporting new / advanced technologies (edge storage, analytics, multi-streaming, etc.). However, this frequently results in integration problems as initial issues are worked through. A combined company would be much better and quicker at solving / eliminating them. Moreover, it would ensure that new / advanced camera features are thoroughly integrated on the VMS.
Axis could certainly afford acquiring Genetec.
Axis has a market capitalization of $2+ billion USD on annual revenue of ~$700 million USD. By contrast, Genetec's revenue is likely under $100 million and even a very high valuation of 5x sales would put their market capitalization at 1/5th of Axis'.
Genetec Only Viable Choice for Axis
For Axis, if they were to pursue a solution play, Genetec is the only choice that makes sense. Because the move is sure to scare / offend partners, Axis would have to pick the strongest independent VMS available. Otherwise, they are stuck in a Canon / Milestone or Illustra / Exacq situation where one side of the organization drags down the other (i.e. weak Canon and Illustra cameras).
Defend Against Rivals Acquiring Genetec
Axis also needs to worry that a rival who already makes cameras will acquire Genetec. This one would be a serious problem for Axis as so many of their largest accounts use Genetec.
Genetec is the last large independent VMS left. Axis needs that and it's better for Axis to secure it themselves than to risk it falling into the hands of a rival.
Objections From Axis and Genetec
The most basic objection is that such a deal fundamentally violates / blows up their market positioning / posturing of both companies for more than a decade. And while Milestone did that, they were under pressure by their investors to cash out. Even then, Milestone has been frantic in ensuring that nothing will change.
Genetec has no such outside investment / pressure and less motivation to sell. As such, we expect it would take a premium offer from Axis to motivate Genetec.
From Axis standpoint, acquiring any VMS would fundamentally undermine their relationship with other partners. For years, they have been very careful to minimize that damage, though, of course, the ongoing expansion of Axis own VMSes (Camera Station, Camera Companion and AVHS) show that they are not opposed to providing VMS software.
The Last Singles at the Dance
The problem is companies are increasing 'pairing off', with camera and recorder manufacturer joining forces.
Axis and Genetec can resist but, with each independent company that becomes part of a conglomerate, their competitive positioning is undermined.
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