A Mature Market In A Technological Upgrade Cycle 

The security services market

Guarding, alarm monitoring or cash-in-transit, have been around for decades. At first sight, it is a mature market that is experiencing consolidation. Technology adoption is driving sector concentration and margins.

• The global security services market is growing at 5% and is expected to reach $215bn by 2025.

Technological response drives margin expansion

The old-fashioned manned guarding is expensive and not able to detect threats efficiently on large sites. Technology is being increasingly used in combination with humans. Although special devices require a trained workforce, profitability of technology-intensive security companies is well above average.

• The technological response include HD surveillance cameras, thermal images, drones, sensors, and analytics.

Multinationals are taking over the market

Large security companies have the financial and operational means to offer the use of sophisticated technology to their clients. Moreover, they benefit from an international presence and may act as the single counterparty for the security services of multinationals. Partnering (when not outright acquiring) tech suppliers has been key to market share gains.

• In the U.S., the companies with revenues above $50mn increased their market share from 66% to 77% between 2012 and 2018.

Fear Of Crime Drives Growth 

Opportunities in Emerging Markets

Emerging Markets, and especially Asia, represent the global engine of growth for security services. These regions rely on low labor costs, while urbanization and high activity in building construction boost demand for the guarding industry.

• The Asian market is growing almost at a double-digit rate and should be the largest market in the world by 2025 with sales above $60bn.
• China and India in particular are booming markets that will generate more than 50% of the region revenues in 2025.

A response to burglary

The FBI estimates that approx. 30% of the burglaries involve retail stores. The combination of remote guarding with alarms significantly reduces the risks of property theft.

• In the United States, burglary costs businesses over $800mn in property losses per year.
• 74% of uncompleted intrusions can be credited to an audible alarm.

Rising inequalities drive the demand

The number of wealthy individuals is globally on the rise and the inequality gap has been widening. As an individual climbs up the social ladder, his or her perception of crime also increases, and wealthy people want to protect their physical assets.

• The Gini index, a measure of social inequality, has risen In the US, from 40.2 in 1978, to 48.6 in 2018. In China, it was at 32.2 in 1990, and at 38.5 in 2016.

Technology Increases Efficiency And Margins

Technology improves profitability

On-site guarding and protection services have traditionally been low value-added activities. Technology is changing this trend. With the help of electronic devices, fewer guards are required to secure a given area. Leaders’ operating profits have room to grow – the more sophisticated the guarding solution, the higher the profit margins.

• Guarding is a highly competitive industry with profit margins as low as 4% - not sustainable for smaller companies.
• Remote monitoring is more profitable, offering margins above 8%.

Computer vision and motion detection

High definitions cameras have increased the potential number of interesting features within an image. The rise in computing power is allowing the use of AI-powered solutions to detect potential threats in real-time from images taken by video cameras. The next step will be to use AI to detect breaches before they occur.

• AI-powered behavior analysis may include the detection of area entrance and exit, the traversing of a virtual border, or an abnormal behavior within a crowd.

A technological answer to false alarms

Remote guards must constantly deal with false alarms that require time, and hence money, to be verified on site. Technology reduces costs and increases efficiency. Sensors and thermal cameras for night vision optimize video verification before first responders are dispatched to the field.

• According to IACP, 98% of alarms call in the United States are false alarms.

Larger Is Better 

IA helps consolidate the industry and expand services

Historically, the goal of M&A activities for security service companies was to expand the geographical coverage and gain market share. Today, the acquisition of entities to develop high-tech capabilities is essential. Offering technological security solutions is a competitive advantage compared to local players.

• Allied Universal, a market leader in the United States, publicly announced 9 acquisitions in 2019, 3 of which related to pure tech solutions.

Clients' demand drives the trend

The significant investments made over the last few years in electronic services incurred by the larger players respond to the demand of the clients looking for a onestop provider. These companies are now experiencing larger growth rates from this new segment than from the traditional manned guarding. Smaller companies do not have the financial strength to follow the trend are losing clients.

• The top-5 companies have a 25% global market share only. Consolidation is just starting.

If you cannot acquire technology, partner with the suppliers

Security companies rely on many partners to provide the technology or the devices they do not develop in house, e.g. video surveillance cameras. The larger suppliers benefit from the concentration wave, as they are the only ones able to provide products in large quantities and at a standard quality all over the world.

• Securitas and its peers collaborate on important projects with companies like FLIR Systems or Hikvision.

Catalysts

• Increased regulations. Security service companies must face an increased amount of regulations. Only the larger entities have the financial strength and the internal resources to adapt to the evolving legal framework.
• US municipalities outsource security functions. For budget reasons, many small localities prefer to outsource security to reduce costs. The political debates about the police role surrounding the death of George Floyd could accelerate this trend.
• Terrorism event. Fear feeds the security services market. A major terror attack would increase security budgets.

Risks

• Staff turnover. Security services experience a high staff turnover. The increased use of technology requires qualified personnel, a scarce resource. Pressures on labor costs could intensify.
• Minimum wage increases. Minimum wages are globally on the rise. If wage increases are not reflected in the clients’ contracts, the already thin margins of the security firms offer little buffer.
• Low barriers to entry. It requires no capital to launch a guarding company. Being able to provide high value-added security services is essential to stay in business.