Industry Description
The alarm, horn & traffic control equipment manufacturing industry in the U.S comprises the production of various communication devices, including alarm systems, hazard detection systems, traffic signals, sirens, and intercom systems (NAICS 33429). This industry excludes the manufacturing of telephone apparatuses, radio and TV broadcast equipment, and wireless communications equipment.
The following are some basic characteristics of the alarm, horn & traffic control equipment manufacturing industry:
- Alarm, horn & traffic control equipment manufacturing industry has a combined revenue of $4,6 billion, with a growth rate of 3.4% in 2019-2024
- There are approximately 300 businesses as of 2019
- The alarm, horn & traffic control equipment manufacturing industry employs approximately 83,700 people
Industry Trends
The alarm, horn & traffic control equipment manufacturing industry is highly fragmented and has low levels of market share concentration, with the top three industry operators comprising approximately 38% of industry revenue in 2019. The largest players have numerous locations across the U.S., while small players are typically independently owned and operated in 1-2 states. Some key external factors that influence this industry are (i) growth in vehicle registration, (ii) declining demand in the oil and gas sector, and (iii) private investments in institutions. Each of these is described in further detail below.
Car registration has experienced significant growth, enabling manufacturers in the horn and traffic control equipment industry to experience a rise in sales volume. There is a desire to raise safety concerns, making this field a huge market for the industry. Car registration volumes have increased from 260 million cars sold in 2014 to 276 million in 2020. Horn and alarm manufacturers have experienced a sales surge increasing revenue earnings. This positive trend associated with the industry is expected to widen operational scales.
The oil and gas industry’s poor performance has led to a decline in the demand for this industry. It is projected that the fire alarm sector will grow at a rate of 4.2% in the period 2023-2030. Manufacturers of these safety tools experienced a decline in sales volume over the same period. However, it is expected that this trend will change over time and that a positive trajectory will continue, improving industry operations. It is a move that will enable the industry to grow and realize desired levels.
Increases in private investments in manufacturing institutions triggered a rise in the demand for alarms and horns. The American gas alarm market is expected to grow at a rate of 5.8% in 2021-2026 which has encouraged manufacturers to improve their performance levels over time. It is expected that the performance levels will rise to meet this growth. These positive changes are projected to grow the industry. These are encouraging trends and have enabled the security sector to become innovative. Private investment in manufacturing facilities is expected to spur growth in the industry.
The alarm, horn & traffic control equipment manufacturing industry in the U.S. is influenced by external elements, such as rising car registration rates, low demand from the gas and oil sector, and increased private investments in institutions. There has been a rise in the number of cars registered, enhancing industry growth. Although the gas and oil industry did not have preferences for alarms and horns it is expected that they will increase the usage of security devices in the future along with private investments in manufacturing institutions the industry demand will increase as a result.
Key Performance Metrics
In evaluating the alarm, horn & traffic control equipment manufacturing industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Compliance rate
- Defect rate
- Mean time between failures (MTBF)
- Mean time to repair (MTTR)
- Reliability rate
- Signal range
Industry Organizations & Publications
The following organizations publish useful information:
- American Traffic Safety Services Association (ATSSA)
- Electronic Security Association (ESA)
- National Electronic Security Alliance (NESA)
- International Municipal Signal Association (IMSA)
Guideline Information: Private Purchase Transactions
Most alarm, horn & traffic control equipment manufacturing companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held alarm, horn & traffic control equipment manufacturing companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of alarm, horn & traffic control equipment manufacturing companies:
- Revenue multiples between 0.6 and 3.2 times
- Gross Profit multiples between 1.4 and 5.0 times
- EBITDA multiples between 4.2 and 30.1 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most alarm, horn & traffic control equipment manufacturing companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The three largest publicly traded U.S alarm, horn & traffic control equipment manufacturing companies ranked by market capitalization are:
- Lumentum Holdings Inc (LITE) – $3.7 billion market capitalization
- Esco Technologies, Inc. (ESE) – $3.0 billion market capitalization
- NAPCO Security Technologies Inc (NSSC) – $1.4 billion market capitalization
The Price-to-Earnings (P/E) ratios of these three companies range between 15.9 times and 27.8 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Alarm, horn & traffic control equipment manufacturing companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.