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JCI announces acquisition of Tyco International - Building controls, energy management and IoT solutions from a one-stop shop is finally here

26 Jan 2016 | by Konkana Khaund
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Johnson Controls Inc.’s (JCI) recently announced acquisition of Tyco International is the latest in strategic competitive moves that underpins a key mega trend defining several industry sectors at present: “Convergence of technology leads to convergence of competition.“ Technology convergence has been the cornerstone of the smart building technology industry for a considerable time now. JCI’s leading position in several major segments of this industry including automation and controls, HVACR and energy management has been established with its capitalization on technology convergence through strategic acquisitions, smart technology investments, in a well charted manner. The acquisition of Tyco will help JCI explore further opportunities together as a consolidated conglomerate-Johnson Controls Plc, with a combined revenue size of $32 Billion annually.

This consolidation, beyond offering advantages of tax inversion to JCI (for shifting its corporate headquarters to Tyco’s Ireland base), will create several competitive disruptions in markets such as HVACR, fire and life safety, security, automation as well as lead to more defined competitive organization within the connectivity driven and Internet-of-things (IoT) enabled smart building market. While markets such as fire and life safety, security, controls and HVACR could expect to see a formidable competitive leader emerge at the top end, it will be interesting to see how this impacts the connected and IoT segments of the smart buildings market. This will potentially offer a more defined scope and solution positioning in a nascent market struggling with myriad of offerings and competitive jostling for positions. The combined positioning and solutions portfolio of JCI and Tyco in the connectivity and IoT segments will generate some alignment of solutions and structured competitive tiers. IoT devices are predicted to reach 23 billion by 2020 as per Frost & Sullivan’s research, and IoT enabled smart buildings will include a significant share in it. It will be particularly interesting to watch what innovative business model for delivering IoT and smart buildings solutions emerge from this acquisition.

Services will be a key area to watch out for as direct beneficiary of the acquisition. Tyco’s established installation and services business will bring in distinct value to the combined entity. JCI’s CEO Alex Molinaroli emphasized the ability to “service customers more comprehensively and innovatively" during a press conference organized for this acquisition announcement. Services are expected to contribute 30 percent to global revenues for the new company. System integration, installation and services are an integral part of the building automation and energy management industry that players like JCI, Tyco and a host of their major competitors have already incorporated into their business portfolio for competitive advantages and ownership of customer relationships. This acquisition further strengthens the positions of the two companies in installation and services by exposing them to a much wider scope of opportunities that goes beyond energy, automation and controls to include security, access controls, elevators, visualization, and more.

With a strong portfolio combining building solutions, energy and connected solutions including IoT, this could also help JCI foray more aggressively into the area of smart cities, thus lining up with its current building technology competitors such as Siemens and Schneider Electric, in addition to others such as Cisco, IBM, to name a few.

More immediately, combining business synergies and creating operational efficiencies will offer unique competitive advantages to JCI and Tyco vis-à-vis competitors in these markets, not to forget geographic revenue potential for JCI and Tyco, particularly within markets in Europe and China, and access to a combined pool of channel partners in all regions. Cross selling to each others’ customer base is another advantage that accrues from this relationship. How rival competitive alliances and partnerships of the two companies will be figured out is not clear at the moment, however, establishment of a clear one-stop shop for building and energy solutions with a strong capability in connected solutions and IoT is highly apparent right away.

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