On 30th November 2015, FLIR Systems announced it acquired DVTEL Inc., a provider of enterprise-class security and video surveillance solutions, for $92 million in cash. Commenting on the transaction, Imperial Capital views the announcement very positively.
DVTEL is a leader in software and hardware technologies for advanced video surveillance. Imperial Capital estimates the company has revenues of $35 to $45 million, growing at well over 10 percent annually. Therefore, the price FLIR is paying for a highly-regarded industry technology and full solutions leader, at about 2x revenue, is not high, according to Imperial Capital.
The following additional commentary on the FLIR/DVTEL deal is provided by Jeff Kessler and Saliq Khan of Imperial Capital.
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We are maintaining our Outperform rating and our one-year price target of $40 on FLIR shares; our price target is about 30% above the recent share price. Many may still consider FLIR as just a premier provider of very high-end cameras in the bellies of Bell Helicopters in a very uncertain government sector. However, this 35-year-old company is a global leader in thousands of infrared detector cores and thermography equipment markets and also provides lower-priced products to the commercial and consumer security customers as well as other customers (e.g., automotive, boating, Original Equipment Manufacturers [OEM], smart grid.)
Rationale
DVTEL is a privately-held company and, though its brand may not be as well-known as other companies, its technology and industry vision has always been at the industry forefront, and it has won many product awards. DVTEL develops true broad-based video solutions, for large companies such as Google, mainly for the enterprise level market, but the company’s medium business solutions include:
- Open platform for other camera manufacturers;
- A highly rated “Latitude” Network Video Management System (NVMS);
- A full set of video analytics developed through its acquisition of ioimage in 2010, one of the strongest analytics suites on the market;
- Cameras, encoders and video analytics.
DVTEL developed an industry-first |
DVTEL has developed many cutting edge products over time that remain innovative, but under FLIR could be marketed and commercialised with a strong brand behind them, particularly because FLIR is an industry leader in providing cloud-based services in which customers can view and manage each of their site installations, gain access system health reports, receive email alerts upon system status changes, etc., allowing end users to detect and cope with problems before they occur, saving time, money and on-site visits.
Storage and transmission improvements
DVTEL developed an industry-first mobile video application that turns mobile smartphones into full-featured IP video surveillance cameras that stream video into DVTEL’s Latitude Network Video Management System. [They are a] leader in the new group of 4K super high definition cameras that can be used for gaining four times the evidentiary detail with minimal impact to storage costs, relative to the older standard 1080 pixel, that can drastically improve the stability, range, and detail of video images for evidence. Meanwhile, DVTEL is developing storage and transmissions improvements to keep both bandwidth and cost issues in line.
Mixing strengths and weaknesses
DVTEL’s technology and solution focus is “cool,” but there are additional reasons supporting our positive view on the new acquisition. There are several strategic fits of mixing strength and fixing weaknesses in acquiring DVTEL:
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| The acquisition of DVTEL is a direct challenge to the integration community to now take a full solution from FLIR seriously |
FLIR has already demonstrated it knows how to integrate video acquisitions, such as the October 2012 acquisition of Lorex Technology, which take up the low and medium end of video cameras and total video solutions.
- Right now, FLIR is still known in the security industry as a high quality niche participant in thermal infrared imaging for specialty purposes, even though its generation security camera offerings have garnered wards of their own. The company is now known as a full video solutions provider, which is what Canon is trying to do with its recent acquisitions of Axis Communications (cameras) and Milestone Systems (VMS).
- The acquisition of DVTEL allows FLIR to become a major participant in the full solutions market, by already being a significant and respected manufacturer of cameras, and core miniaturisation, along with thermal technology and a developing hybrid visible light/thermal capability.
- DVTEL brings FLIR a very high technology capability analytics (something that FLIR has been stressing in all its trade show and security conference meetings and in meetings with investors), as well as a well-respected VMS.
- DVTEL brings a true open system capability to FLIR with a wider range of SDKs (software development kit) than even FLIR has.
- Despite some major successes in the last couple of years, DVTEL still lacks a big brand name and has little impact in the consumer and small and medium business (SMB) space, where FLIR has made a big impact with its acquisition of Lorex Technology.
- The acquisition of DVTEL is a direct challenge to the integration community to now take a full solution from FLIR seriously, as the other major North American choice has had some controversial management moves. Whether or not FLIR can challenge the full solution being put together (albeit with declared strong “Chinese Walls”) of Canon Inc., Axis Communications and Milestone Systems has yet to be seen.
We still believe the low-cost camera arena is increasingly being dominated the large Chinese manufacturers, who may eventually get smarter about offering more open, better full video solutions However, our understanding is that there may be some resistance by end-customers to Asian video analytics solutions at the SMB and Enterprise level of the security industry.
 | Jeffrey Kessler Institutional Research Imperial Capital |  | Saliq Khan Vice President of Institutional Research Imperial Capital |
