GE Security Sale -- UTC to Buy GE Security

UTC has agreed to buy GE Security - confirmed directly by UTC. Nonetheless, GE Security suffers from significant competitive problems that are widely acknowledged and lamented by members of the security industry.

Background

In August 2009,  Bloomberg reported that JP Morgan has been hired to sell GE Security. The division reported $1.8 B USD revenue in 2007 and expects an acquisition price in the range of $2 B USD.

On November 12 2009, UTC announces acquisition of GE Security for $1.8 Billion. GE Security would likely become a division of UTC Fire and Security. 

Review our analysis and discussion of UTC's plan for GE Security.

Update March 1, 2010: UTC-GE Deal finalized.

UTC Company Profile

Despite UTC Fire and Security generating about $6 Billion in annual revenues, their product portfolio in security is shallow. For instance, 60% of revenues are from service and installation.

Access control is a strong area with their Lenel division being one of, if not the leading, physical access control manufacturer (acquired in 2005 for $440 Million as noted in UTC's 2005 Annual report).

The overlap between GE's Casi Rusco product offerings and Lenel will be significant. Both product lines have substantial customer deployments but Lenel's product development over the last 5 years has far surpassed that of GE Security's physical access control. Does UTC keep both? Do they wind down the GE product line or spin it off? Lenel's product strengths give it a clear edge over GE Security's offering and likely spells more troubles for GE Security's access control customers.

UTC is weak in video surveillance and the additive effect of GE Security's video is questionable. Lenel lags in video surveillance and earlier this year partnered/OEMed their video to OnSSI.

Feedback on UTC Acquiring GE Security

SSN has extensive feedback and commentary from a UTC executive and an industry analyst. Additionally, UTC specifically calls out the Edwards fire business as a key strength. UTC wants to increase service revenues from the more traditional product business of GE Security. However, the problem with the video and access businesses are that the products are weak. It will be hard to drive up service revenue in the long run based on a weak product portfolio.

Power in Security?

While GE Security has sizable sales (reported Top 5 2007 revenue in video surveillance according to IMS), rarely do GE Security products stand out.

At least in video surveillance, I cannot think of a single recent GE product that I found to be innovative. And never has any end user or integrator contacted me asking for information on GE Security products (amazing given GE Security's size and the fact that I get hundreds of requests).

I am not sure what competitive advantage an acquirer would get from GE Security (though I suspect they are stronger on the alarm side, e.g. Mastermind seems fairly dominant). Multiple analysts are reporting that GE's real strength is in the Fire market.

SSN has an interview with a GE Security dealer who is not happy with GE, citing GE's failures to keep commitments. The dealer says the main attraction is the value of the GE corporate brand. With numerous unhappy dealers and consultants (see comments below), a lagging product portfolio and no GE brand to leverage, the value of GE Security to an acquirer looks questionable.

Community Consensus - GE Security Deep Problems

As the comments below from dealers and integrators demonstrate, GE Security has significant problems:

• "I can't think of a single company that was made better after acquisition by GE, and many that were made considerably worse."
• GE is "probably the worst of the Big Corporates" in regards to "how well the products they produce serve the security community"
• "For a while they seemed to buy anyone that would sell, and in many cases their purchases were redundant or devoid of real strategic value."
• "They have had good opportunity to develop innovative, integrated solutions, but instead appeared to completely lose focus on their goals."
• "GE's products just seem like old technology to me"

Bidding War

Bloomberg is speculating on a bidding war for GE Security. Take a look:

Given the price of the deal, it does not appear that a bidding war occurred. The price is especially weak, considering the current bubbling global markets.

Good for the Industry

This sale and its implict acknowledgement of GE Security's problems is actually a good thing for the industry and has the potential to spur growth and foster quicker adoption of more innovative IP product offerings.

What Do You Think?

While I talk to many GE Security alumni (who all cite GE Security's multitude of problems), I rarely talk to or are contacted by GE Security employees.