Acquisition Pushes Cisco Further Into Surveillance

Jun 19, 2007 3:31 PM

Terrorists, vandals and other villains skulking in the shadows should take note of Cisco Systems' recent acquisition of BroadWare Technologies, financial community observers have pointed out.

The BroadWare deal, while small in dollars, highlights the rising demand for companies that make video surveillance gear. Driving that trend is the confluence of Homeland security concerns in the U.S. and the spread of sophisticated security networks based on Internet technologies.

In 2006, for example, following the lead of London and other cities around the world that use high-tech tools to monitor vital infrastructure, New York's Metropolitan Transit Authority signed a $212 million contract with Lockheed Martin for the defense contractor to develop a video surveillance system to monitor the city's subways, bridges and tunnels. Other cities, such as Cleveland, Dallas and Akron, Ohio, plan similar projects.

Such demand has caught the attention not only of Cisco, but also of other tech giants such as IBM, Hewlett-Packard and EMC, which are expected to make acquisitions to delve into the video surveillance market, according to thedeal.com.

"We're going to see more (mergers and acquisitions) from the likes of IBM and Cisco," says Dilip Sarangan, a research analyst with Frost & Sullivan, a San Antonio, Texas-based technology consulting firm. "A lot of the previous M&A activity has been from traditional security players, but now it's a growth market for information technology firms."

In 2006, venture capitalists and other investors poured $100 million into late-stage video surveillance technology companies. Experts think the market is ready for consolidation.

"We think the amount of invested growth capital will decrease in 2007, as investors begin to look for returns and exit strategies," said a February report on the video surveillance market from USBX Advisory Services, a Santa Monica, Calif., investment bank geared to small and midsize customers.

To date, most of the buyers for this sort of technology have ranged from companies that offer security and building infrastructure services, such as General Electric and Honeywell International, to defense companies such as L-3 Communications.

Starting last year, however, big IT players began pushing hard into the sector. IBM launched its own line of video analytics software. In September, Siemens Building Technologies purchased VistaScape Security Systems, a video analytics company, for an undisclosed amount. Cisco bought video surveillance company SyPixx for $51 million.

Breaux Walker, managing director of America's Growth Capital, an investment bank in San Francisco, said the BroadWare and SyPixx deals represent an effort by Cisco, the leader in networking equipment, to accelerate growth by cultivating niche tech markets. Yet he questions the size of the video surveillance market and doubts whether venture firms will reap significant returns on their investment in the sector.

"I think this is a hyped bubble," Walker says. "When you look at the market, it's just not that massive."

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