Security Solutions Q BOSTON CHICAGO LONDON LOS ANGELES PHILADELPHIA SAN DIEGO SILICON VALLEY TAMPA CONTACTS

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1 CONTACTS Todd McMahon Managing Director (617) Daniel Schultz Director of Business Development (617) Matthew Person Associate (617) STATE OF THE MARKET Retail shrinkage, shoplifting, employee theft and supplier fraud costs U. S. companies over $40 billion annually. Conventional wisdom would say that the problem is only getting worse due to the growing popularity of trendy tech consumer products, must-have clothing and footwear, and other temptations. Costs associated with vandalism would only seem to make matters worse. But, the numbers tell a different story as crimes involving property, including theft, and burglary rates have steadily declined over the last decade. One major reason behind the decrease is the growing efficacy of security and surveillance systems. And security customers have taken notice, as evidenced by the increased spending on new technologies and solutions. With healthier corporate balance sheets and access to new and more affordable technology, demand for security solutions is expected to rise. Industry revenue is forecast to increase from $52.0 billion in 2014 to $60.5 billion in 2019, a compound annual growth rate of 3.8%. Security Solution Sales $ $60 $50 (Billions) $40 $30 $20 $10 $ Source: IBIS BOSTON CHICAGO LONDON LOS ANGELES PHILADELPHIA SAN DIEGO SILICON VALLEY TAMPA Driven by these strong fundamentals, M&A transaction activity in the security solutions industry very robust in recent years. So far, 2015 shows no signs of slowing down as some significant deals (especially in hardware) have already transpired. Canon s continued consolidation of the video surveillance market, most recently via its acquisition of Axis Communications, and The Riverside Company s acquisition of large-space video surveillance company Pro-Vigil, confirms the belief that intelligent video will continue to be in demand as part of an overall security solution. Access control products (including NFC devices) will also continue to draw strong demand as technological advancements support further integration of identification management, access control and monitoring. Winners in the product space will be those with differentiated offerings that can defend their market position.

2 MARKET TRENDS Winners are those who are not only confident in their service offering, but who have also educated their customers on the value they provide. - Todd McMahon Managing Director Security Solutions Team For service providers and integrators, now more than ever, margins matter as the industry continues to shift from project focused opportunities to comprehensive solutions with value-added services. Risk assessment, consulting, CAD use, system integration, training and on-site and in-field support services are all playing an increasingly large role in the industry. These advanced offerings generate consistent and predictable cash flows for potential buyers. That being said, we continue to see the all too common practice of providers being reluctant to charge appropriate rates for service. Frequently, providers are not aware of the true costs of their services. Middle market providers must know the true cost associated with each customer, including which ones are profitable, in order to make better pricing decisions. Winners are those who are not only confident in their service offering, but who have also educated their customers on the value they provide. DO-IT-YOURSELF DISRUPTION? As competition for services revenue increases, traditional providers are fending off competition from other players with in-home technology, such as cable providers and do-it-yourself companies who are leveraging advances in wireless technology. The DIY security market has quietly grown over the last few years as sector leaders like FrontPoint Security acquired customers, including the low-income and rental community. Offering professional monitoring services and nominal up-front costs to entice consumers, DIY security is projected to grow to a $1.5 billion industry by 2020, according to NextMarket, and strategic and financial sponsors alike are starting to take notice. Third-party monitoring company Monitronics just acquired LiveWatch Security, a provider of DIY home security systems, for $67 million, recognizing the DIY security segment as a new avenue for growth. This transaction comes on the heels of Sequoia Capital s $57 million investment in self-installable provider SimpliSafe, which sells a system without a contract for under $300. Startups like Korner and Canary are also aiming to garner a share of the residential market, while established players like Honeywell, ADT and UTC are introducing new branded products. While the viability of DIY security versus professionally installed systems remains to be seen, larger regional and national monitoring companies will be taking a more serious look at the DIY space as they look to maintain their leadership positions. THE BIG DEAL Given the attention to the security solutions market of late, management of security officer services firm AlliedBarton believes that this is the right time to seek a new private equity sponsor, and views a transaction as a critical element of their ongoing growth strategy. The deal could value the company at $1.5 billion, including debt, according to Reuters. Acquired by the Blackstone Group in 2008 for $670 million (up to $750 million based on potential earn-outs), AlliedBarton is the largest U.S. based provider with more than 55,000 employees and 120 offices that handle security for corporate clients in several industries. Capstone Partners LLC 2

3 GROWTH DRIVERS Integrators with the combination of breadth of product and services and knowledge of scalable platforms will benefit most from the rising demand for linked security devices. - Todd McMahon Managing Director Security Solutions Team The long term prospects for security solutions appear both bright and sustainable due to several important dynamics. We have identified some of the key growth drivers below. Connected Devices Significant advancements in technology have increased the volume of connected devices. The resulting need for an array of access control, identification management and surveillance system products to communicate will force companies to make significant investments in open-platform solutions as closed, appliance-based solutions are phased out. Integrators with the combination of breadth of product and services and knowledge of scalable platforms will benefit most from the rising demand for linked security devices. Alarm Verification A rising trend across the country involves new regulations that impose fees and penalties for false alarms. First responders are increasingly either not responding to or placing a low priority on non-verified alarms. Demand for video and/or audio verification products is on the rise from both residential and commercial customers alike. The Power of Video Sales of Video Management Systems (VMS) are on the rise as technology enhances capabilities. From new Ultra HD or 4k technology to video content analysis software that can analyze abnormal behavior and movement patterns, advanced video functionality allows customers to operate more accomplished security systems. In addition to technological advancements, a glut of lower-priced cameras, especially from overseas manufacturers, is driving demand for remote video solutions. Biometrics From hospitals retrieving health records from a single biometric scan to banks requiring fingerprint swipes to verify customer identities during a transaction, biometric authentication has become the standard in identification management. The Department of Homeland Security created the Office of Biometric Identity Management (OBIM) in 2013, and now accounts for ~13% of sector revenue. As digital biometric technology advances, including the growing viability and adoption of near field communication (NFC) technology, identification management and access control will continue to move toward a model that focuses user IDs onto mobile devices. Expect corporate spending on mobile biometric authentication to increase as it becomes a more affordable, and efficient, means of access control. Security as a Service A lack of resources, combined with rising threats and government regulation, is driving businesses towards outsourcing more security functions. Security as a service, where security companies install and monitor an entire network of cloud-based information, identity control, and physical security and surveillance, is gaining popularity due to cost and flexibility benefits. Capstone Partners LLC 3

4 SELECTED DEAL BRIEFS 3xLOGIC, Inc. acquires infinias, LLC s access control products (March 2015) 3xLOGIC s acquisition of infinias access control product lines is further proof that the access control and video surveillance sectors are merging closer together. Traditionally a provider of video surveillance solutions, the deal adds a cloud-based access control solution to 3xLOGIC s product portfolio. Adding infinias to our product portfolio means we are now in the position to change the way the industry looks at access control and video, said 3xLOGIC CEO Matthew Kushner. Canon Inc. acquires Axis Communications (February 2015) In late 2013, Canon CEO Fujio Mitari commented that security cameras were an important new business area as the sector showed limitless possibilities for growth. Since then, the company acquired VMS provider Milestone Systems and followed shortly thereafter with video surveillance products company Axis Communications, in a move that shook up the sector. The transaction makes Canon the largest video surveillance company in the Americas by market share as, per research firm IHS, Axis had over 5% of global market share in 2014, worth approximately $15 billion. The Riverside Company invests in Pro-Vigil (February 2015) The video surveillance sector has seen significant interest of late as technological advancements have significantly increased capabilities and reduced costs, enticing consolidation. The Riverside Company s investment in Pro-Vigil, a provider of remote video surveillance and monitoring solutions for large outdoor properties, as a growth platform is further proof of private equity s appetite for the security sector, and video surveillance specifically. Riverside expects to expand Pro-Vigil into new markets and geographies, organically and via add-on acquisitions. Robert Bosch North America acquires Javine Ventures (January 2015) In an effort to complement its existing building automation and security solutions, Bosch acquired Javine Ventures, dba Climatec, a recognized leader in building systems integration, including energy services. As energy demands increase from the rising use of electronic devices and networks, customers have increasingly sought efficiency solutions to mitigate operating costs. The acquisition allows Bosch to offer customers a complete portfolio of networked and efficient energy, building automation and security solutions. Convergint acquires Beacon Security & Communications (January 2015) Consistent with efforts to expand their geographic reach, Convergint Technologies enhanced their European capabilities via acquisition of UK-based Beacon Security & Communications. Beacon serves global Fortune 500 companies with system design, integration, support and training. Convergint, a designer, installer and servicer of integrated building systems, including electronic security, fire and life safety, and building automation, growing rapidly as it continues to build-out worldwide service capabilities, according to Dan Moceri, Executive Chairman. Capstone Partners LLC 4

5 SELECT SECURITY SOLUTIONS M&A TRANSACTIONS Date Target Acquiror Target Business Description 03/05/15 infinias, LLC, access The access control product lines of infinias, LLC comprises access control hardware 3xLOGIC, Inc. control product lines and security solutions. 02/26/15 LiveWatch Monitronics Security, LLC International, Inc. Provides home security systems for customers in the United States and Canada. 02/18/15 Pro-Vigil, Inc. The Riverside Company Manufactures and delivers remote video surveillance and monitoring systems and services. 02/10/15 Axis Communications Canon Inc. An IT company, provides network video solutions for professional installations in Europe, Africa, the Middle East, North and South America and Asia. 02/09/15 Agilex Accenture Federal Provides mission & technology consulting, software & solution development and Technologies, Inc. Services LLC system integration services to the national security, healthcare and public sectors. 02/03/15 Video Insight, Inc. Panasonic Corporation A software development company, focuses on writing digital video of North America, Inc. recording software. 01/29/15 Action Security Hosse & Hosse Safe and A licensed alarm contractor that installs security alarm systems for residential, Systems, Inc. Lock Company commercial, industrial and government institutions in Tennessee. 01/29/15 Global Security Designs and manufactures security products for homeowners and law SIGMAXYZ Inc. Experts, Inc. enforcement agencies worldwide. 01/29/15 Aegis Technologies, Inc. MyerConnex, Inc. Distributes home automation systems, lighting control systems, residential and commercial access control systems and telephone systems. 01/19/15 Discoverture Provides information technology solutions and services to insurance and MindTree Limited Solutions, LLC healthcare industries. 01/13/15 Allied Protective Central Security Provides alarm and security systems sales, installation, monitoring and servicing Systems, Inc. Group, Inc. in Oklahoma. 01/08/15 Beacon Security & Convergint Develops and markets access control, electronic security and personnel Communications Ltd. Technologies LLC management systems. 01/06/15 Javine Ventures Inc Robert Bosch North America, Inc. Doing business as Climatec, LLC, provides building automation and energy management services. 01/06/15 Invisible, Inc. Citon Computer Corp. Provides custom engineered technology solutions. 12/16/14 Secure-i, Inc. Alarm.com Inc. Develops and delivers subscription-based video surveillance solution for homes and businesses. 10/29/14 Allied Data Solutions, LLC RMM Solutions Inc. Designs and installs low voltage cabling solutions. 08/20/14 Safeguard Security and Security Alarm Financing Provides security and fire alarm, video surveillance, access control, energy Communications Inc. Enterprises, L.P. management, Web and mobile control, audio/video related and other services. 08/11/14 Tri-Ed Distribution, Inc. Anixter Inc. Distributes security products, including CCTV, IP video, connectivity, access control, surveillance, low voltage, fire, structured cabling and home automation. 07/30/14 John D. Brush & Co. Inc. Master Lock Doing business as Sentry Group, Inc., manufactures and sells home and Company LLC business safes. 06/30/14 SIGCOM Inc. Designs, installs and maintains integrated communications and physical security UNICOM Government, Inc. systems for federal government clients, select commercial clients and universities. 06/04/14 CohuHD Costar, LLC Costar Technologies, Inc Develops and manufactures high-definition video surveillance camera systems for use in traffic, security and critical infrastructure applications. 05/23/14 SDA Security Provides commercial and residential security services to businesses and Bay Alarm Company Systems, Inc. homeowners in Southern California. 05/21/14 Acree Daily Integrated Xentry Systems An electronic systems integrator, installs security, access control, fire alarm, nurse Systems, Inc. Integration, LLC call, asset tracking, emergency notification, media delivery and command centers. 05/14/14 ConvergeOne, LLC Clearlake Capital Provides solutions from design through ongoing management and technical Group, LLC support for telephony, IT, contact center and unified communications (UC) sectors. 04/30/14 Reliance Protectron Inc. The ADT Corporation Engages in selling, installing, servicing and monitoring electronic security systems to residential, commercial and industrial clients in North America. 04/21/14 Alarm Detection Alarm Security Systems Inc. Group, LLC Provides residential and commercial security services. 04/09/14 Norment Security Cornerstone Detention Group, Inc. Products, Inc. Operates as a detention systems contractor and electronic systems integrator. 04/07/14 Amsafe of Miami, Inc. Alarm Security Provides installation, service and monitoring of burglar and fire alarms, CCTV and Group, LLC card access systems to residential consumers. 03/25/14 KnowledgePath Operates as a systems integrator that provides multi-channel mobile and Digital Management, Inc. Solutions, Inc. ecommerce solutions for consumer, retail and business brands in the U.S. 01/15/14 Hawk Security Services My Alarm Center, LLC Designs, installs, monitors, sells and services interactive security solutions for business and residential customers in the United States. 01/07/14 Intelligent Access Sys. of North Carolina Securadyne Systems, LLC Operates as a security systems integrator for commercial properties. Capstone Partners LLC 5

6 PUBLIC COMPANY TRADING & OPERATING DATA Price % 52 Wk Market Enterprise LTM 1-Yr Rev EV / LTM Company 3/9/15 High Cap Value Revenue EBITDA Margin Growth Revenue EBITDA Diversified IT Services & Integration Diebold, Incorporated $ % $2,242.7 $2,312.7 $3,051.1 $ % 6.8% 0.8x 9.2x Honeywell International Inc. $ % 80, , , , % 3.2% 2.0x 11.9x Johnson Controls Inc. $ % 32, , , , % 2.5% 0.9x 12.1x Kratos Defense & Security Solutions, Inc. $ % % (8.7)% 1.1x 15.9x Stanley Black & Decker, Inc. $ % 14, , , % 4.1% 1.6x 10.1x Tyco International Ltd. $ % 17, , , % 2.3% 1.8x 17.5x United Technologies Corporation $ % 110, , , % 4.0% 1.9x 10.7x Mean 12.1% 2.0% 1.5x 12.5x Median 10.4% 3.2% 1.6x 11.9x Harmonic Mean 10.5% NM 1.3x 11.9x Access Control & Biometrics Allegion Plc $ % $5,567.6 $6,565.9 $2,118.3 $ % 2.4% 3.1x 15.2x ASSA ABLOY AB $ % 21, , , , % 17.2% 3.2x 2.3x Identiv, Inc. $ % NM NA 7.5% 1.0x NA Checkpoint Systems Inc. $ % % (4.0)% 0.6x 5.8x Napco Security Technologies, Inc. $ % % 1.5% 1.6x 18.1x Mean 45.4% 4.9% 1.9x 10.4x Median 15.7% 2.4% 1.6x 10.5x Harmonic Mean 15.3% NM 1.3x 5.5x Video Solutions Avigilon Corporation $ % $727.9 $669.8 $234.4 $ % 52.2% 2.9x 14.3x Canon Inc. $ % 35, , , , % (0.1)% 1.0x 5.7x FLIR Systems, Inc. $ % 4, , , % 2.3% 2.8x 12.9x Mobotix AG $ % % (9.2)% 1.9x NM NICE Systems Ltd. $ % 3, , , % 6.6% 3.4x 17.9x Shenzhen Infinova Limited $ % 1, % 1.8% 6.3x 27.5x Mean 17.5% 8.9% 3.0x 15.7x Median 19.5% 2.1% 2.8x 14.3x Harmonic Mean 12.9% NM 2.2x 12.1x Alarm Monitoring AlarmForce Industries Inc. $ % $94.2 $88.8 $41.9 $ % 6.0% 2.1x 5.7x Ascent Capital Group, Inc. $ % , % 19.6% 3.8x 6.0x The ADT Corporation $ % 6, , , , % 3.5% 3.4x 6.7x The Brink's Company $ % 1, , , % (5.7)% 0.5x 8.4x $ in millions, except per share data EV = enterprise value; LTM = last twelve months NM = Not Meaningful Source: Capital IQ Mean 39.5% 5.8% 2.5x 6.7x Median 44.2% 4.8% 2.8x 6.4x Harmonic Mean 16.5% NM 1.3x 6.5x Capstone Partners LLC 6

7 CAPSTONE PARTNERS: SELECT SECURITY SOLUTIONS TRANSACTIONS CLIENT (CONFIDENTIAL) is pursuing a corporate sale IT SERVICES & SECURITY SYSTEM INTEGRATOR Capstone Partners retained by a regional IT services and security systems integrator located win the Southeast. An award winning firm, management has leveraged a highly-efficient IT infrastructure to rapidly grow, building a leadership position within the education market. Services include Audio Video Solutions, City Surveillance, Enterprise Networking, Hosted & Managed Services, Physical Security including Access Control, Unified Communications and Voice, Data and Fiber Cabling. a portfolio company of Capstone Partners advised Surveillance Specialties, Ltd. ( SURV ) on its acquisition by Securadyne Systems, a portfolio company of Pamlico Capital. SURV was founded in 1986 as a covert surveillance company and changed its business model to a full-service systems integrator in Since then, the company has achieved considerable and consistent growth, and emerged as a top independently-owned and operated security systems integrator in New England. The transaction complemented Pamlico s build-up strategy which was focused on securing best-inbreed operating platforms. The acquisition of SURV considerably expands Securadyne s geographic reach and expands the company s ability to deliver highend, fully integrated solutions in a number of key vertical markets. initial public offering $82,500,000 controlling interest has been FINANCIAL ADVISOR L-1 Investment Partners, LLC has acquired has secured growth financing from TPN CAPSTONE VENTURES LLC Capstone Partners LLC 7

8 THE SECURITY SOLUTIONS TEAM Todd McMahon, Managing Director (617) Todd McMahon possesses over 20 years of transaction, financial services and corporate executive experience. Prior to Capstone, Todd was President of Array Financial Services, a Boston based boutique M&A advisory firm he founded in He began his career at Putnam Investments, later moving to Bank Boston s investment banking group. Later, Todd served as Managing Director at Ross Crossland Weston/RCW Mirus, where he was responsible for managing the firm s technology investment banking practice. Todd s investment banking experience is complemented by his involvement as an entrepreneur and investor where he was involved in various consolidation transactions, raised over $30mm of debt and equity financing and was responsible for managing all aspects of operations. He earned his MBA from Boston University and his BA from the University of Massachusetts. Daniel Schultz, Director of Business Development dschultz@capstonellc.com (617) Dan oversees Capstone s national business development and industry coverage activities, working closely with current and prospective clients of the firm on matters related to corporate sales, recapitalizations, mergers & acquisitions and growth financings. In his role, Dan is able to deliver specific market intelligence to clients regarding M&A, financing, strategic, industry and competitive trends. Prior to spearheading the firm s business development and market initiatives, he was a Vice President in Capstone s M&A group, managing numerous successful transactions across a variety of industries. Dan also gained hands-on transaction experience as an investment banker at Headwaters MB. He started his career with Ernst & Young s National Professional AABS practice and later worked in Assurance and Advisory Business Services in the Denver office. Dan received a BE in Biomedical Engineering with a Business Minor from Vanderbilt University. He earned an MBA and a Master of Accountancy from the Daniels College of Business at the University of Denver. Matthew Person, Associate mperson@capstonellc.com (617) Matthew works closely with senior team members while executing a variety of corporate finance transactions. Prior to joining Capstone, Matthew worked as an investment banker with a consumer products M&A boutique firm. He also worked with Breakaway Innovation Group, a hybrid venture capital and strategy firm focused on early to growth stage businesses. Before entering the finance industry, Matthew enjoyed a long career in professional sports management with executive operations responsibility for various Minor League Baseball franchises. He earned an MBA in Entrepreneurship and an MS in Finance from the Carroll School of Management at Boston College, graduating with honors as a member of Beta Gamma Sigma. He holds a BA in Economics from Colgate University. Capstone Partners LLC 8

9 CAPSTONE S OFFICE LOCATIONS BOSTON 176 Federal Street 3rd Floor Boston, MA (617) CHICAGO 200 South Wacker Drive Suite 3100 Chicago, IL (312) LONDON 42 Brook Street London W1K 5DB United Kingdom +44 (0) LOS ANGELES Avenida de la Carlota Suite 600 Laguna Hills, CA (949) PHILADELPHA 1515 Market Street 12th Floor Philadelphia, PA (215) SAN DIEGO High Bluff Drive Suite 200 San Diego, CA (858) SILICON VALLEY 228 Hamilton Avenue 3rd Floor Palo Alto, CA (650) TAMPA 1550 W Cleveland Street Suite 10 Tampa, FL (813) ABOUT CAPSTONE PARTNERS Capstone Partners LLC is a premier investment banking firm dedicated to serving the corporate finance needs of middle market business owners, investors and creditors. The firm provides corporate sale & divestiture, merger & acquisition, private placement, corporate restructuring, valuation and financial advisory services. Capstone maintains various industry specialties including one in the Security Solutions industry. The firm also has a merchant banking capability to actively co-invest in transactions. Headquartered in Boston, Capstone has offices in Chicago, London, Los Angeles, Philadelphia, San Diego, Silicon Valley and Tampa. For more information about our expertise, please visit World Class Wall Street Expertise. Built for the Middle Market Capstone Partners LLC. All rights reserved.