Rating the Prospects: After Acquisition of SnapAV, What Major Home-Tech Co. Will H&F Buy Next?
Opinion: After acquiring SnapAV, private equity giant Hellman & Friedman likely will follow up with 'transformational transaction' that disrupts home-technology landscape: Control4? Savant? Core Brands? Interlogix? PlumChoice?
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Important: Please note that the sentiments expressed in this piece are solely the opinion of this editor, based on a very brief conversation with one of the principals and an intense understanding of the home-tech industry in general and SnapAV in particular. The opinions were formed after exhaustive online research on past H&F transactions, and not expressly informed by either parties. The piece is meant to challenge the imagination of a very traditional channel that could benefit from a little disruption. Hopefully, we achieved this objective. Some very slight modifications were made to this blog for clarification. JJ
After acquiring SnapAV, private equity giant Hellman & Friedman is likely to follow up with a “transformational transaction” that changes the course of the home-technology distributor, and possibly the smart-home installation landscape altogether.
H&F doesn’t acquire companies to merely “accelerate growth,” says SnapAV president and co-founder Adam Levy in an interview with CE Pro. They buy successful organizations in developed industries to do something really dramatic – something “transformational,” according to both Levy and H&F.
That means a substantial acquisition or other synergistic transaction that, as H&F says, “can make a significant difference to the trajectory of the company.”
The deals are huge, and they can ripple through an industry.
In a separate article, I run through a few of H&F’s past deals and how they can portend the next big play vis-a-vis SnapAV. H&F buys industry-leading companies and then pairs them up with other industry-leading companies to dominate a market.
Here I speculate what “transformational transaction” might be in store for SnapAV. I feel pretty confident that H&F won't disrupt (in a negative way) SnapAV's core business of serving home-technology pros. H&F acquired SnapAV because it believes in the home-technology installation channel.
First, here’s a snapshot of SnapAV:
- What they do: Design, manufacture (mostly overseas) and distribute home-technology products including audio, video, surveillance, networking, power management and home automation.
- Primary market: Home-technology specialists (aka, installers, integrators, CEDIA dealers) – the people who design, install and support residential technologies.
- Number of dealer customers: Thousands and thousands
- Market position: Leading provider vis-à-vis many top home-technology manufacturers and distributors.
- Products: Consistently the most-specified brands among CE Pro 100 dealers.
- Prices: Generally very competitive across product categories
- Claims to fame:
- The first and still considered the most exceptional e-commerce engine in the channel
- Equally impressive operational platforms
- No sales direct to consumer; dealer margins protected
- Highly efficient
- Extreme data analytics
- Vertical integration from product design to manufacturing to sales and support
- Rising star: OvrC remote-management service that will drive sales of connected SnapAV products
- Size: Estimated 2017 revenues between $500 and $700 million (rough math here)
- Employees: Over 250
- Fun fact: Top 5 Fed Ex accounts in North Carolina; final pickup 9:00pm - 10:00pm
Below are some companies that H&F might be considering as transformational companions for SnapAV. I give them "likeness" scores on a scale of 1-10. A caveat: Just because I propose any company could be a potential candidate for an acquisition doesn't mean they're necessarily for sale.
Right now, SnapAV serves mostly home-technology specialists, but it could use its considerable back-end processes to expand into other markets.
Commercial [likelihood: 2 out of 10]
This seems like an obvious market, especially since a big chunk of SnapAV’s dealers already serve small businesses and commercial venues. H&F might acquire a manufacturer that brings with it a wealth of products and dealers to boot. The problem is: I know of no such company in the commercial integration sector that develops its own “wealth of products.”
Electricians are getting into the low-voltage business and vice versa so why not acquire an electrical supplier like Hubbell, Leviton, Eaton or Emerson Electric? SnapAV could kill three birds with one stone, attracting electrical contractors, lighting specifiers and commercial installers, many of which would be buyers of SnapAV’s low-voltage products.
The big problem is that it might be difficult to take these products out of wholesale distribution and online retailers. Electrical contractors like to pick this stuff up from Home Depot or their local supplier.
SnapAV sells surveillance products, but not alarm systems. Acquiring an alarm panel manufacturer could do a world of good. First, it would bring security dealers into the SnapAV family … and they do a whole lot of volume, even installing the same low-voltage products that SnapAV sells (surveillance systems, cables, networking, and often entertainment gear). Right now they’re buying from security-centric distributors like ADI.
Secondly, acquiring an alarm company could finally get low-voltage integrators (SnapAV dealers) into the security business. They all want that elusive recurring revenue, but they’re afraid of security. If SnapAV puts resources behind it, they could be the ones to cajole their dealers into the space.
On another note, SnapAV’s OvrC remote-management service was supposed to be a recurring-revenue play, but dealers weren’t able to sell it so OvrC made it free. To date, we haven’t seen a strong recurring-revenue model that does not include monitored security.
- UTC’s Interlogix, which has its own SHaaS (smart home as a service platform) that might be useful to SnapAV [6/10]
- 2gig, formerly a Nortek business, which was acquired by private equity firm Melrose in 2016 for $2.8 billion [6/10]
- Napco (Nasdaq: NSSC), which also has a SHaaS platform of its own [5/10]
- Qolsys, a younger company owned in part by Tyco and (I have speculated) Alarm.com [3/10]
- Tyco’s DSC, which also sells Qolsys products (they would likely be sold as a two-fer) [4/10]
- DMP, another one with its own SHaaS [3/10]
Existing Market Expansion [4/10]
Maybe SnapAV will acquire other low-voltage companies to expand market share in its core business.
More Low Voltage [2/10]
SnapAV actually has some competitors that have similar business models, and they might bring in some new customers or product lines.
Vanco comes to mind, but there’s just too much product overlap. [1/10]
A more opportune partner would be Arlington Industries, which makes some of the same products as SnapAV, but also a whole bunch of useful little things that SnapAV doesn’t carry, especially products for electrical contractors such as fittings, connectors, floor boxes, conduit boxes, etc. [2/10]
More Custom Electronics [4/10]
SnapAV could add more high-performance low-voltage products to its mix, and they certainly could do it more profitably than current providers. While I dismissed such a move at first, it makes sense. SnapAV’s existing customers are buying these types of products anyway – why not buy them from SnapAV, which would take the products out of distribution, reduce pricing, incorporate them into the e-commerce portal and kill consumer Internet sales.
In addition, SnapAV could bring these products into the OvrC platform, allowing remote monitoring and management of higher-end products. Finally, acquiring any of these brands could get SnapAV into international markets, where the company doesn’t yet play.
One prospect is Core Brands, which owns SpeakerCraft, Niles, Elan Home Systems, Panamax and other popular custom home-technology brands. In particular, Elan could hasten SnapAV’s foray into the home-automation business. It’s a nice thought, but I think there would be too many properties within Core Brands that SnapAV wouldn't want. There’s a lot of duplication there, especially in the speaker and power-management categories. As with 2Gig, Core Brands now belongs to private equity firm Melrose. [3/10]
Legrand is another prospect. SnapAV would kill a few stones with this one: custom electronics (Qmotion, Middle Atlantic, Luxul, OnQ, NuVo, Vantage); commercial (Ortronics, Wiremold, more); and electrical (Pass & Seymour, Wattstopper, Pinnacle, more). Again, though, there’s too much product overlap in the custom electronics group and I just don’t see it happening. But SnapAV sure could use Qmotion's motorized shades and Vantage's lighting-controls. [1/10]
Geographical Expansion [4/10]
SnapAV doesn’t do business in Europe or elsewhere outside of North America, except for brands it has acquired – Autonomic (media servers), Visualint (surveillance) and SunbriteTV (outdoor displays). Clearly there’s a huge market outside of the U.S.
I can’t really say who might be an attractive partner there, other than to reiterate that groups like Core Brands and Legrand could deliver international customers, as could home-automation companies like Crestron, Control4 and Savant -- all on my list (below).
Here’s an interesting thought: H&F owns Verisure (formerly Securitas Direct), which purports to be the “most widely installed home alarm in Europe” (and growing strong in South America). The synergies with SnapAV would be undeniable: expansion into the security business and international markets to boot.
Like SnapAV, Verisure is vertically integrated. Not unlike ADT, Vivint and others, Verisure has its own security products, installation force and central monitoring station. SnapAV could bring the security products to the U.S. (They wouldn’t disrupt their current channel by bringing Verisure’s installation arm to the U.S.) Meanwhile, Verisure could incorporate SnapAV’s low-voltage products into their offerings.
The thing is: Verisure is built for high-volume, efficiency and recurring revenue. They probably don’t give a hoot about other product lines. In any case, if this were H&F’s plan for SnapAV, it would have been part of the announcement. [2/10]
Home Automation [6/10]
SnapAV needs a robust custom-centric home automation system, including lighting controls. It has been building one through OvrC, but that would take a lot of resources to catch up with existing vendors. Furthermore, it would take a ton of time to gain traction among dealers who use these existing home-automation systems.
It has been rumored for some time that SnapAV would buy Control4 or Savant.
Savant's high-end brand name combined with its simpler platform and ecosystem would make it easier to sell to SnapAV dealers who don’t have a lot of home-automation experience. I think Savant would be in the running if SnapAV were to acquire the company on its own. [4/10]
Control4 (Nasdaq: CTRL) has a large dealer base of some 5,000 home-tech pros worldwide; a rich product line that includes lighting controls, energy management, A/V distribution, networking (Pakedge), communications, touchscreens, remote controls, high-end loudspeakers (Triad) and more; a strong e-commerce engine that includes products from Control4 partner companies; and homebuilder Toll Brothers as a customer. It also has a robust sales and marketing engine that includes lead generation, telemarketing, end-user support and other services to drive business to dealers and improve customer care. Revenues continue to climb. [8/10]
I've always said Crestron isn't for sale, but things might be changing over there. The $1.5 billion (revenues) home-automation and media-distribution company could be very interesting. It would take SnapAV into commercial and international markets plus the very, very big business of 4K video distribution. [7/10]
RTI could be a remote possibility [1/10] as could URC [3/10]. URC has the edge because it is a long-time SnapAV partner for remote controls and home automation; it already has an OvrC driver. It also has a nifty all-IP multiroom audio system (Total Control) that SnapAV doesn’t have. SnapAV could buy the retail business while URC keeps its substantial OEM remote-control business, but I doubt this is H&F’s big play.
Clare Controls might have been a neat acquisition if SnapAV were going it alone, but it's too small to matter to H&F. [1/10]
Not quite sure where to put Leviton, but I'll drop it right here since the company has security and home automation solutions from its acquisitions of HAI in 2012 and BitWise in 2014. The company also is a massive provider of electrical products, lighting controls and commercial infrastructure products. An acquisition would be unlikely, I think, because it would be tough to reconcile Leviton's DIY and extensive distribution channels with SnapAV's business model. It could still happen, of course. [1/10]
End-User Support Services [7/10]
SnapAV has hinted in the past that it might deploy support services for end users. Such a service could monitor the performance of OvrC-connected networks and smart devices remotely, alerting customers of problems or preempting those problems altogether. End users could contact this service center for Tier 1 support.
Dealers have struggled to be proactive with remotely managed systems. They don’t have the bandwidth to review alerts, and they certainly aren’t available 24/7 for support.
An acquisition in this space would certainly be transformational. It would allow dealers to charge for support services that they haven’t been able to do in the past. Companies like OneVision and Access Networks are doing this for high-end integration projects, but not on a grand scale.
Either would be interesting acquisitions for SnapAV, as would Support.com and others of their ilk.
I struggle with the prospects for this one. I don’t see anything in H&F’s acquisition history that suggests a transaction that is only potentially synergistic. Typically, merged companies in H&F's portfolio are dominant in the same or similar industry, and the synergies are apparent and readily exploited.
Buying a service-center provider to launch a completely new business model for SnapAV could be too risky an endeavor for H&F.
I think that any company that really understands the custom-intallation channel and the SnapAV business -- I think H&F does -- wouldn't undermine its core constituents: home-technology integrators. As such, I think it's highly unlikely that H&F would acquire some national installation firm or dealer portal like HomeAdvisor, HelloTech, InstallerNet or Installs Inc.
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Julie Jacobson is founding editor of CE Pro, the leading media brand for the home-technology channel. She has covered the smart-home industry since 1994, long before there was much of an Internet, let alone an Internet of things. Currently she studies, speaks, writes and rabble-rouses in the areas of home automation, security, networked A/V, wellness-related technology, biophilic design, and the business of home technology. Julie majored in Economics at the University of Michigan, spent a year abroad at Cambridge University, and earned an MBA from the University of Texas at Austin. She is a recipient of the annual CTA TechHome Leadership Award, and a CEDIA Fellows honoree. A washed-up Ultimate Frisbee player, Julie currently resides in San Antonio, Texas and sometimes St. Paul, Minn. Follow on Twitter: @juliejacobson Email Julie at firstname.lastname@example.org
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