The State of Surveillance

Rising crime (and cost of crime), shrinking police numbers, technological innovation and an associated fall in production costs have supported steady growth for the security market in recent years, with Mintel estimating UK market growth of c.5% p.a. since 2014.

Police-Recorded Crime by Offence (England & Wales)

Size of Police Force (England & Wales)

Video surveillance and CCTV, which comprise the largest portion of the market (c.£1.8bn in 2018), have experienced the fastest rate of growth, propelled by new technologies and the proliferation of ‘smart home’ devices. In the B2B market, part of the CCTV growth story has been share gain from the manned guarding market, which has fallen in real terms in the past five years, and in volume terms (the number of security guard licenses), has remained broadly flat.

In certain sectors (e.g. construction), CCTV is regarded as functionally more effective than manned guarding for both intruder detection and deterrence. CCTV also has a clear cost advantage compared to a manned guarding operation, augmented by a rising minimum and living wage and declining costs of technology.

National Minimum and Living Wage

Technology Innovation Areas

Aside from the steady rise in take-up of the cloud (covered in our discussion of video surveillance as-a-service below), one of the key innovation areas in video surveillance is AI and deep learning, the purpose of which is to automate threat detection, thus reducing the need for human monitoring. AI analytics software can oversee thousands of video channels, searching for patterns, analysing images and distinguishing threats from false positives. Many of the major camera manufacturers offer some form of AI solution, whether server, hardware or edge-based, and UK installers are increasingly touting the benefits of AI to their more sophisticated customers.

Another trend, which in recent weeks has had the brakes slammed on it, is facial recognition. More than a quarter of security professionals polled by IFSEC claimed to be using facial recognition technology in 2019, citing improvements in effectiveness and speed of investigations and even the ability to prevent crime ahead of time (think the real-life Minority Report). However, facial recognition’s widespread use by police forces in the UK and the US have come under fire from civil liberties groups who argue the technology has unchecked inbuilt racial biases, leading to unacceptable false positives when analysing faces of African and Asian ethnicity.  Amazon, Microsoft and IBM have announced this month they will stop or pause sales of facial recognition technology to police forces, a largely symbolic gesture since these tech giants are not the major providers into the market. The knock-on effects of this remains to be seen in the private sector in the UK and the US.

In terms of hardware innovation, one notable trend in the UK is the growing market for body-worn cameras. Used in the public sector by the police and traffic wardens (and the Ministry of Justice has recently tendered a £12m contract for their use in prisons), demand has also risen in other industries where front-line employees may face aggravation from members of the public. Body-worn cameras not only provide reassurance that all actions are on record (and protect against false accusations), but also work as a deterrent to a potential aggressor. The latest user groups to consider adopting body-worn cameras are school teachers and hospital staff, where trials are ongoing to assess their use in combatting anti-social behaviour. The roll-out of 5G technology is likely to accelerate uptake of body-worn cameras by improving the quality of transmitted video, unlocking new use cases where real-time high-definition video is critical (e.g. crime scene assessments).

Selected Police Forces Cumulative Investment (to end of 2019) in Body-Worn Camera Technology

Surveillance Beyond Security

Greater image resolution and instant mobile access (via the cloud) have allowed video surveillance and CCTV manufacturers and installers to market an expanded set of use cases for CCTV, well beyond the domain of security. This has created additional value for customers and is another contributor to the recent growth in the market. An estimated 2,000 rapidly deployable CCTV cameras sit on construction sites across the UK, with site managers able to log on and remotely monitor site progress, assess health and safety concerns, and when the project is complete, compile a time-lapse video for their marketing release. In the white collar world, facial recognition technology has been used to identify when VIPs enter a building (e.g. in luxury retail, hotels and private banks), while platforms such as Sneek allow bosses to monitor the productivity of their workers through regular webcam photos.  (Employee monitoring is perfectly legitimate so long as the purpose of the surveillance is communicated to employees in company privacy notices.) With official government guidance (as of July 2020) still asking people to ‘work from home if you can’, COVID-19 has clearly significantly intensified the demand for remote monitoring solutions, whether it’s for paranoid bosses or eager heads of construction. The pandemic has also given rise to a new set of ‘back to work’ safety use cases, with higher-end surveillance technology capable of analysing building occupancy to manage social distancing, and thermal analytics deployed to measure elevated human temperatures on building entry and exit (although in the UK the MHRA has warned against the accuracy of so-called ‘fever cameras’).

The Rise of Video Surveillance … as a Service (What Else?)

There has been a wave of video surveillance start-ups in the last three years, spanning video surveillance as-a-service (VSaaS), cyber, analytics and AI providers as well as new hardware (cameras, drones, robotics) manufacturers. The US has been the hub of this activity, buoyed (like the UK) by a rise in criminality and falling numbers of police officers.

VSaaS (which like many of its ‘XaaS’ software cousins takes the form of a low-cost, scalable subscription platform) has become increasingly attractive as trust grows in third parties to manage cyber security concerns, broadband speeds continue to rise and compression technologies become more prevalent. Large recent fundraises in the video surveillance start-up space include Vaion, Solink, Eagle Eye and Faceter (all of which are based in North America).

Recent Security Technology Fundraises

In the UK, there is plenty of headroom for growth: according to IFSEC, only 30% of security users have implemented cloud-based technology for surveillance, and only 40% of them are on a shared cloud. This can be mostly attributed to the infancy of the market in the UK: 20% of non-cloud users saw the technology as too immature when they installed or upgraded their system. GDPR concerns linked to overseas data storage also exist, even though the storage of personal data is entirely permissible outside of the EU providing the storage complies with GDPR or equivalent principles. Notable video surveillance start-ups in the UK include redaction and occupancy management specialists, Ocucon, Oxford-based cloud video storage company Videoloft and false alarm filtering platform, Calipsa.

For investors, VSaaS software is an altogether different business model to the traditional players in the security market (manufacturers, distributors and electrical wholesalers, FM providers, ARCs and installers) and could represent an interesting avenue to access the positive tailwinds of a market that has historically been either difficult to invest in or unattractive (see the table below for current UK PE security assets). An oligopoly of conglomerates (Avigilon-Motorola, Bosch, Panasonic) and Chinese giants (Dahua and Hikvision) control the camera market, a large swathe of B2B security is looked after by listed or multinational FM and ‘total security’ providers (Mitie, G4S, Securitas, OCS, Interserve, etc.), while the installer market (beneath ADT, Chubb, Stanley and SECOM) is heavily fragmented and often very low-margin. That said, a few innovative owner-managed mid-sized installers still exist and prosper in the UK. However, even undifferentiated installers may stand to benefit from the rise of VSaaS (and other cloud applications in security), as the technology permits more higher-margin remote maintenance.

UK&I Private Equity Security Assets (as of July 2020)

CompanyPE OwnerYear of InvestmentCompany DescriptionLatest Year RevenueLatest Year EBITDA
Action24BGF2020Security equipment installation and maintenance and monitoring solutionsn/an/a
Churches FireHorizon Capital2017National fire safety and security equipment installation and maintenance22.35.2
Clearway GroupBGF2018Vacant property services19.53.4
CSL GroupNorland Capital, ICONIQ Capital, RIT Capital Partners2016Alarm signalling technology and connectivity solutions26.59.7
Digital Barriers Volpi Capital2017Edge-AI and IOT surveillance solutions19.71.2
Domo Tactical CommunicationsMarlin Equity Partners2016High performance overt and covert surveillance, communications and broadcast systems19.71.0
FortusRockpool Investments2020Security equipment distributorn/an/a
iEvoNorthstar Ventures2013Manufacturer of biometric security productsn/an/a
NetwatchRiverside Company2018Wholesale, industrial and construction monitoring solutions10.81.7
Orbis ProtectNorthEdge Capital2018Vacant property services33.63.7
Send for Help GroupECI2019Lone worker protection devices and monitoring15.27.5
StaffsafeForesight2015Retail monitoring solutionsn/an/a
VolumaticNVM2012Cash handling products9.61.8
VPS GroupPAI Partners2014Vacant property services39.04.5
Note: Revenue and EBITDA values in GBP millions per statutory accounts. Action24, Fortus, iEvo and Staffsafe have filed abbreviated accounts with no P&L information. Defence-only and vehicle-only security companies not included.

‘Smart Home’ Security

The last major theme in the security market sits in the B2C sphere: the boom of the ‘smart home’ market, where security has become a central use-case. Much of the appeal lies in the easy to set up (DIY) nature of these systems, combined with their affordability. Established manufacturers such as Honeywell and ADT have released ‘smart home’ packages, but have already been usurped by Amazon’s Ring and Google’s Nest offerings (which extend beyond video doorbells to comprehensive home security kits).

Insurers have also recognised the benefits of the connected home, forming partnerships with ‘smart home’ security companies or, as home insurance start-up Neos has done, including the devices in the insurance package. Other UK start-ups in the domestic connected video surveillance market include London-based Angee Technologies and Leeds-based Cocoon.

We expect the ‘smart home’ market, and the video surveillance sub-sector, to experience significant growth as it gradually become ubiquitous in developed economies.

Whether you’re an investor looking to understand the video surveillance (or wider security) market further, or an SME interested in strategic advice, please reach out to Oli Lestner or Paddy Woods Ballard to find out how we can support you.


Sources

  1. 2020 State of Video Surveillance Startups, IPVM, May 2020
  2. Security Equipment, Access Control and CCTV, Mintel, February 2019
  3. The Video Surveillance Report 2019, IFSEC Global, September 2019
  4. Unquote European PE Data, Accessed July 2020
  5. Various Statutory Accounts (2018-19), Accessed July 2020

Note: this article does not discuss the drivers and trends in the vehicle safety sector (e.g. vehicle CCTV), where Fairgrove also has advisory experience.