Would a Hikvision / Pelco Deal Make Sense?

By: John Honovich, Published on Feb 05, 2013

A persistent industry rumor says Hikvision and Pelco are in talks to do a merger / acquisition. Who knows the truth. Even if there are some talks, that does not mean anything will come of it.

In this note, we examine if it would make sense. It might happen, it might not but if it did, would it be a good deal and for whom?

Hikvision's Huge Growth

Hikvision has been growing enormously, fueled by China's bubbling surging economy, and now does over $1 billion USD total revenue, pretty much all in video surveillance. This is ~4 times the size of their 2009 revenue of ~$340 million USD (see Hikvision's financials). That's both unprecedented total revenue and growth rate for a large surveillance company. Moreover, they are extremely profitable with net income over 25% (top Western companies are typically in the teens).

Plus, Hikvision has a massive valuation and a lot of cash on hand. Today, the company is worth ~$10 Billion. To put that in perspective, that's more than 5 times Axis's valuation and probably equal to every video surveillance company in the Americas. Plus, Hikvision has close to $1 billion USD cash in the bank.

Hikvision's Challenges

Now, if you knew nothing about video surveillance, you might conclude that this company has groundbreaking technology and innovations that far surpass its competitors. However, that's far from the case. On a pure product / technology perspective, the company is middle of the road, at best, more in line with solid companies like ACTi and Vivotek.

Hikvision has been the one of the best and, judging by its financials, the biggest success in China. For example, in the last few years, Hikvision has expanded into Chinese massive Safe City projects including an $800 million integration project. Indeed, almost all Hikvision's revenue comes from inside of China. While Hikvision has been working hard to expand into the West, they are still trying to make their way, fighting without their core 'home field' competitive advantage.

Hikvision's Potential Motivation

Hikvision wants to be a top tier global player. They have a huge valuation and a lot of cash. One way to accelerate expansion would be to buy an established player, rather than take years and the risk of expanding incrementally into foreign markets.

Get Notified of Video Surveillance Breaking News
Get Notified of Video Surveillance Breaking News

Pelco would deliver a very well known brand and an established channel sales structure that Hikvision could tap into for 'global domination.'

Schneider Electric / Pelco Background

Schneider Electric owns Pelco and has for the past 5+ years, acquiring Pelco in 2007 for ~$1.5 billion USD. At that time, Pelco did ~$500 million in revenue. We suspect that Pelco's revenue today is still similar to that range as the overall Western market for traditional CCTV providers has been week over the past 5 years.

Schneider's Motivation

We suspect Schneider might listen but doubt they would be hugely motivated unless Hikvision offered a great price. On the one hand, the Pelco acquisition does not look like a huge success. On the other, it is a solid complimentary asset in the overall Schneider portfolio. While Schneider paid 3x Pelco's revenue in 2007, that premium is far out of line for mature companies today (March got acquired recently for less than 1x revenue by another Chinese manufacturer).

Perhaps Hikvision, with such a strong financial position now, is willing to significantly overpay to motivate Schneider.

Will It Work?

Making a deal like this work is a huge risk, unless Schneider is willing to give Pelco up at fire sale prices (which we doubt). Even if Hikvision acquired Pelco, there is huge overlap in product development / offerings. Would they gut the product side and just use their sales and marketing? If so, that's an incredibly high cost for such an effort. However, since Pelco has so many existing customers, they would like need to continue most of their existing offerings. And even if Hikvision could lower the cost structure with their Chinese based manufacturing, it would be nearly impossible to come close to the profit levels they enjoy within China.

This makes for a juicy rumor and a fascinating what if, but it does not make a lot of sense to us. If it happens, it will certainly be quite a spectacle, for better or worse but we suspect Hikvision is better off building its own International team organically.

UPDATE: Deal Fell Through

Multiple sources tell IPVM that the deal was in advanced negotiations but ultimately feel through.

1 report cite this report:

Why Dahua Should Acquire Pelco on Jun 18, 2014
In 2013, negotiations for mega Chinese manufacturer Hikvision to acquire Pelco broke down. At that time, we argued that it was a bad fit. However,...
Comments (12) : PRO Members only. Login. or Join.

Related Reports

US State Department: "Chinese Tech Giants" "Tools of the Chinese Communist Party" on Sep 12, 2019
The US State Department has called out "Chinese tech giants" for being "tools of the Chinese Communist Party" in a blunt new speech that makes...
Hikvision Lobbying Against And Preparing For Potential US Sanctions on Sep 09, 2019
Hikvision has been lobbying against and preparing for potential US sanctions, according to US government records, financial filings and partner...
Megvii Financials and Growth Examined on Aug 30, 2019
Megvii has already received more than a billion dollars in investment. Now, the company, a top China facial recognition provider, has filed for an...
In China, Foreign AI Companies Banned or Disadvantaged, Says Top China AI Company on Aug 28, 2019
Non-China (PRC) companies are prejudiced and unfairly targeted inside of the PRC's booming AI market, which not only denies them revenue inside of...
China Dahua To Replace Their Software With US Pepper on Aug 22, 2019
What does a US government banned company do to improve its security positioning in the US? Well, Dahua is unveiling a novel solution, partnering...
Uniview Beats Intel In Trademark Lawsuit on Aug 19, 2019
Uniview has won a long-running trademark lawsuit brought by Intel, with Beijing's highest court reversing an earlier Intel win, centered on...
Biometrics Usage Statistics 2019 on Aug 13, 2019
Biometrics are commonly used in phones, but how frequently are they used for access? 150+ integrators told us how often they use biometrics,...
US Government Ban of Dahua, Hikvision, Huawei Takes Effect Now on Aug 13, 2019
The 'prohibition on use or procurement' of Dahua, Hikvision and Huawei products and 'essential components' take effect today, August 13, 2019, one...
Hikvision Global News Reports Directory on Aug 11, 2019
Hikvision has received the most global news reporting of any video surveillance company, ever, ranging from the WSJ, the Financial Times, Reuters,...
Stanley Makes "Multi-Million Dollar Investment" Into Banned Hikvision Products on Aug 09, 2019
Just days from the US government ban going into effect, US mega-corporation Stanley has dramatically increased its imports of banned Hikvision...

Most Recent Industry Reports

ONVIF Suspends Huawei on Sep 20, 2019
Huawei has been 'suspended', and effectively expelled, from ONVIF so long as US sanctions remain on the mega Chinese manufacturer. Inside this...
Open Access Controller Guide (Axis, HID, Isonas, Mercury) on Sep 19, 2019
In the access control market, there are many software platforms, but only a few companies that make non-proprietary door controllers. Recently,...
Axis Perimeter Defender Improves, Yet Worse Than Dahua and Wyze on Sep 19, 2019
While Axis Perimeter Defender analytics improved from our 2018 testing, the market has improved much faster, with much less expensive offerings...
Directory of 68 Video Surveillance Startups on Sep 18, 2019
This directory provides a list of video surveillance startups to help you see and research what companies are new or not yet broadly known. 2019...
Uniview Prime Series 4K Camera Tested on Sep 18, 2019
Is the new Uniview 'Prime' better than the more expensive existing Uniview 'Pro'? In August, IPVM tested Uniview 4K 'Pro' but members advocated...
US Army Base To Buy Banned Honeywell Surveillance on Sep 17, 2019
The U.S. Army's Fort Gordon, home to their Cyber Center of Excellence, has issued a solicitation to purchase Honeywell products that are US...
Vivotek "Neural Network-Powered Detection Engine" Analytics Tested on Sep 17, 2019
Vivotek has released "a neural network-powered detection engine", named Smart Motion Detection, claiming that "swaying vegetation, vehicles passing...
Schmode is Back, Aims To Turn Boulder AI Into Giant on Sep 16, 2019
One of the most influential and controversial executives in the past decade is back. Bryan Schmode ascended and drove the hypergrowth of Avigilon...
Manufacturers Unhappy With Weak ASIS GSX 2019 And 2020 Shift on Sep 16, 2019
Manufacturers were generally unhappy with ASIS GSX, both for weak 2019 booth traffic and a scheduling shift for the 2020 show, according to a new...