Merger and Acquisitions activity in the AV Integration Industry

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In recent years, there has been a great deal of mergers and acquisitions (M&A) in the Pro-AV industry over the past years. Integrators successfully employed merger and acquisitions strategies to grow their businesses by acquiring complementary services and technologies, accessing new geographic markets and bolstering their presence in attractive and growing end markets.

The rapid rise of M&A in the industry is not too surprising. The macroeconomic environment has been defined by slow and steady growth for the past several years. Businesses across the board have been forced to supplement organic growth with mergers and acquisitions in order to remain competitive and deliver shareholder returns.

M&A have impacted both integrators and hardware manufacturers as each strives to remain relevant and competitive in their constantly evolving industries.

The Evolution of the AV Industry

The integration of technologies differentiates the Pro-AV industry from others because many of the technologies, products, and services for audio and video capture, processing, storage, and displays are similar across different applications. The top solutions include conferencing and collaboration, learning, broadcast and web casting, live events production, digital signage, security and surveillance, performance and entertainment.

The new AV Industry model offers its customers a lot more than just AV today. Pro-AV industry experiencing the ongoing shift of AV components to IT networks to enhance audio and video technology with IT capabilities. Collaboration between voice, video and traditional IT evolving and is increasing and is causing a shift in how clients leverage technology to communicate and grow their business.

The trend is that AV integration experts are becoming more like IT value-added resellers and specialize in AV, IT and Security systems. Companies increasingly pool everything from room presentation tech to mobile tech to collaboration tech into a single package. There’s also been a move away from hardware-based applications to completely software-based. We are moving away from installing devices and moving towards making those devices integrate together through software. That is why many companies are now considered significant tech buyers in the tech industry.

AV Industry is moving toward an ecosystem where integrators need to get more closely aligned with companies like Cisco, Dell, and Microsoft. Those companies control a lot of the future of collaboration and integration with them is very important.

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What is Driving the M&A Activity in the AV Integration Industry?

Ari Fuchs, director of The DAK Group, which is an investment banking firm specializing in the middle-market, says the combination of $1 trillion in corporate cash “looking for investment opportunities,” low interest rates and motivated buyers and sellers has driven the eye-popping recent growth in the AV industry.

The professional audiovisual industry will grow from $186 billion in 2018 to $230 billion by 2023, according to updated forecasts in the new 2018 AV Industry Outlook and Trends Analysis (IOTA) Global Summary produced by AVIXA™, the Audiovisual and Integrated Experience Association. It means companies that are looking for ways to make money quickly believe there’s a lot of opportunity to do that right now in this area.

Investment

Outside investments in the AV Integration industry

A few factors why AV systems integration has become more appealing to outside investors, who are looking to add scale, return on investment and profit, are:

A mindset that interest rates would stay low
Growing enthusiasm for smart buildings and Internet of Things
Prices of the devices installed actually declining
A need to be more energy efficient
A need to be more safe
Desire for more functional meeting spaces

Private equity and venture capital firms (buyers expanding their financial portfolio) have been most active in the AV Integration sector. Private equity sponsors typically employ a buy-to-sell approach (buying businesses and then, after improvement and add-on acquisitions, selling them).

On average, private equity firms will hold their investment between three and five years, then either sell to a larger private equity firm, strategic buyer or, if the company is large enough, through an Initial Public Offering.

Examples of integration firms with private equity support are AVI-SPL (acquired by an affiliate of H.I.G. Capital), Diversified (investments by Tailwind Capital) and Verrex (acquired by Five Crowns Capital).

Strategic Buyers are the second type of investors who generally have a strategic angle when acquiring an AV business. Strategic Buyers are looking for integration businesses that can be integrated into and complement their core business or can increase market share, expand capabilities or geography, and improve profitability (competitors or complementary business).

For example, Samsung acquired Harman – the market leader in connected car solutions, with more than 30 million vehicles currently equipped with its connected car and audio systems, including embedded infotainment, telematics, connected safety and security. This added audio (consumer, professional, and automobile), and remote-control technologies to a massive list of Samsung display offerings.

Unified AV Systems acquired Xzact Technologies to provide a full breadth of IT, AV, and other low voltage capabilities to enhance client operations.

Guitar Center acquired Audio Visual Design Group (AVDG). In its press release, Guitar Center explicitly noted that its sees the Audio Visual Design Group acquisition as a key step toward helping its Business Solutions Group expand more into integrated solutions.

Legrand acquired Milestone. Legrand, a giant in lighting controls, home automation, electrical and low-voltage infrastructure, now added screens, mounts, and PTZ cameras to their mix.

Lone Star Communications acquired ArCom Systems (a provider of low-voltage life safety equipment to the commercial, education and healthcare markets). ArCom, a Rauland communications products distributor, supports 152 hospitals with life safety equipment. Because of the acquisition, Lone Star Communications expanded LSC’s reach to 456 hospitals in five states.

Most interesting among the recent trends is M&A activity driven by strategic buyers in adjacent industries, such as low-voltage electrical, HVAC and mechanical, IT services, and hospitality. Their interest is primarily driven by a desire to enhance their relationships with enterprise customers by offering highly complementary AV integration services, while cross-selling their services to a new AV client base.

AV Industry Demographics

Statistically on average owner of the AV Integration company is about 50 years old. The 29 percent of industry professionals are 45 to 54 years old, 28 percent are in the 55-to 64-year-old group, and 10 percent are 65 or older. It means that 38 percent of the industry is over 55 – very close to traditional retirement age – which also creates some opportunities for mergers, acquisitions or partnerships.