State of the Industry: ‘It’s an exciting time’

DALLAS—The regulation of artificial intelligence (AI), the evolution of technology adoptions, and the growth in M&A were among the topics addressed during the State of the Industry panel discussion at PSA TEC 2024.  Moderated by Matt Barnette, CEO, PSA Security Network, the panelists for one of the more popular sessions at PSA TEC were: Don Erickson, CEO, Security Industry Association (SIA); John Mack, executive VP, co-head of investment banking, head of mergers & acquisitions, Imperial Capital; Kumar Sokka, global president and general manager, LenelS2; and John Nemerofsky, chief operating officer, SAGE Integration.  Security mega threat Erickson highlighted AI in discussing SIA’s “2024 Security Megatrends,” an annual report that reveals the coming year’s top 10 factors influencing both short- and long-term change in the global security industry. What is “paramount” in AI, he says: How it’s being treated by various regulators across the country.  “It's occurring on a global basis, it's occurring on a federal basis and (it’s) occurring within the states, and in my opinion, is probably one of the greatest threats to the security industry and security technology,” he noted.  Problem solving Sokka stressed the importance of solving problems for the end user, as well as educating them and getting them to believe in and understand technology.  “At the end of the day, we're trying to solve problems,” he said. “When I look at the last two years, I see the adoption of technology happening. People want to get there, but what’s still holding us a little behind is how do we get the people to believe in it, adopt it and understand what the value can be, versus just being a trend, and we can’t lose that. A lot of the work that we're doing is how do we educate, how do we get in front of our end users with our integrators to ensure that these problems that we want to solve, can we solve them multiple ways?”   Speed cycle  Nemerofsky discussed the complexity of successfully installing new technologies, especially those with AI components.   “The AI conversation is one that goes on every day now with customers,” he explained. “The manufacturers are, with technology partnerships, way out in front of this. The challenges are when we start to take these AI solutions to bigger companies, enterprise clients like a Goldman Sachs, Bloomberg, Salesforce.com and Google. They have AI departments that want to evaluate this for 12- to 18-months, so it's a long sales cycle.” Startup homework Nemerofsky noted that another challenge with AI is new entrants to the market.  “A lot of these newcomers are trying to go direct to the end user,” he explained. “There are long initiatives to get onboarded. Sometimes it takes six to nine months to become onboarded through another channel to market, and these are, in some cases, small companies. So now we're running D&B reports on these startup AI companies to make sure they're going to be around three months from now. Also, do they have training and certification programs? A lot of times, no they don't, so delivery is going to be a little clumsy when we start to pull that closer together.”  ‘Amazing opportunities’ Mack expects M&A activity to grow in the security space following a slowdown in 2023, driven by further corporate acquisition activity, a return of financial sponsor activity and strong balance sheets. He noted that private equity deal activity in 2023 reached its lowest level since 2016 due to high interest rates, but he expects growing public market valuations to drive growth in these deals.  “I've never been more excited about the potential of the industry in the last 20 years than I am today,” he said. “We just have amazing opportunities in front of us, all the technology is enhancing the opportunity. There's a reason lots of private equity is coming into this industry. There's a reason we're experiencing double-digit organic growth rates in a lot of the subsectors of the industry. It's an exciting time.”