Camera manufacturer Canon, Tokyo, is seeking to expand even further into the security market, with a $2.8 billion cash offer to purchase Axis Communications, Lund, Sweden. After acquiring major VMS provider, Milestone, last summer, Canon’s foray into video surveillance is helping it build a solid platform of cameras and video management technology to create a total security solution for its customers.
According to a news report from Reuters, there is a $3.86 billion segment for network-connected security cameras, which is led by Axis with a 17.5 percent share as of 2013.
According to IHS Technology, Englewood, Colo., it is estimated that Axis Communications was the third largest supplier of video surveillance equipment in 2014 with over 5 percent of a global market worth around $15 billion.
Jon Cropley, IHS principal analyst, video surveillance, wrote in a Market Insight report dated February 10, 2015, when news of the potential acquisition hit the media, that “Canon’s acquisition of Axis is the latest in a number of major changes to the structure of the supply chain for video surveillance equipment…Today, the supply chain remains highly fragmented. The top 15 suppliers account for less than 50 percent of revenues and there are thousands of small suppliers. Consolidation has been anticipated for some time and Canon’s purchase of Axis could be just the start of a series of industry acquisitions in 2015.”
“Canon has stated a couple of times last year that it aims for a leading position in network video surveillance. This was also a major reason for Canon’s acquisition of Danish software developer Milestone Systems in June 2014,” Lars Wahlström, Kreab, Swedish spokesperson for Canon in matters relating to the offer, told SDM.
“I think it’s a bold strategic move on their part to go after building a big business in video-related surveillance solutions,” said John Mack, executive vice president, co-head of investment banking at Los Angeles-based Imperial Capital. “This purchase has everything to do with the evolution of a broader physical security product market. These larger companies are looking for opportunities to create a larger selection, either by organic growth and development efforts, or by virtue of acquisitions,” added Mack.
While the purchase of Axis by Canon is not finalized, the deal is expected to close in early spring, assuming it receives stockholder approval. According to Axis Communications, its board of directors has approved the transaction and the three top shareholders, including the founders, have approved the plan — tantamount to approximately 39.5 percent of the total number of shares.
“Axis has a leading position in that market and Canon has followed the company closely for some time,” said Wahlström.” As for the offer’s timing? “I would guess is more a matter of opportunity,” he replied. “After a period of initial discussions, where not only the business fit, but also the cultural fit was found to match and complement, both sides developed a friendly and constructive relationship, resulting in the recommended public offer presented Tuesday, February 10.”
According to both parties, Axis will retain its identity under Canon. “The unique culture that exists at Axis is seen as a major strength, and Axis will remain as a separate legal entity within the Canon Group,” commented Wahlström. To date, in addition, to retaining the name, the management team will also remain intact.
Axis is believed by many to be the market leader when it comes to IP cameras. Indeed, it introduced the industry’s first network camera nearly 20 years ago, in 1996. Milestone’s software development has made it a leader in network video surveillance management, and its acquisition last summer made it clear to the industry that Canon was set on making its mark on the security industry.
Rokus van Iperen, president and CEO, Canon Europe, Middle East and Africa, explained in a previous SDM news story, “Canon is aiming to take a leadership position in network video surveillance and we are making an important strategic investment today to realize our objective to expand in this market. Together with Milestone, we can accelerate our growth by delivering new advanced products and solutions for new sectors, through new channels, to offer greater customer value.”
With the acquisition of Axis, it is clear that Canon has moved well beyond its original brand positioning with high-end cameras. “Imagine now, if you are Canon and selling to dealers —you are selling cameras from Canon, software from Milestone and now camera and video related peripherals from Axis. You are building a ‘solution’ around all of their components,” said Mack.
Does this mean open platforms may take a step backwards as single-source manufacturers offering all of a system’s video components focus on developing products that are optimized to work best with their own products?
“There will still be open platforms; I don’t think that is changing. But if you are one of the larger camera manufacturers and you haven’t pursued this (solution) strategy, I think you are going to be thinking about it, and if you are one of the standalone VMS players, you are certainly going to be thinking about how to get partnered to deal with this ‘new world order’ of everything integrating together within one solution,” added Mack.
According to Canon, the offer will be launched as soon as the offer document is approved by the Swedish Financial Supervisory Authority.