Johnnson Control’s offer to acquire Tyco International has been accepted by the Tyco board. However it is not yet a done deal.

The premium being offered by Johnson Controls looks reasonable but will it attract other companies to step in with a better offer for the Tyco shareholders?

In our New Report on the Security Industry we identified Tyco as one of 50 potential physical security acquisition targets. For a few years now they have been busy buying up some attractive companies and strengthening their portfolio.

Our analysis of M&A valuation in the physical security market from 2005 to 2015 shows the average valuation received over the last 11 years benchmarked by EBITDA and Revenue Exit Multiple have varied wildly depending on size and leading technology; Specific areas having high growth rates.

In 2014 Google Inc (Nest Labs) paid a revenue multiple of 10 for Dropcam a relatively small video network camera manufacturer and Carlyle acquired Tyco Internationals Fire & Security business in South Korea for an EBITDA of 15.4, almost double the average for the industry. Despite the fact that this is not a high tech business with enormous opportunities for future growth. Is a well protected cash cow.

Last year, Canon acquired Axis Communications, a leading IP Video Surveillance company. The total value of the offer was approximately SEK 23.6 billion and represented a premium of approximately 49.8% compared to the closing price of SEK 226.9 for an Axis share. This meant an exit multiple based on sales of 4.29 and on EBITDA of 9.71.

We estimate that the average exit valuation for both public and private physical security companies in 2015 was 2 x revenue and 9.4 for EBITDA. Tyco are currently trading at around 9.5 X EBITDA. It is one of the largest Fire and Security companies in the world. Once Tyco is acquired there will be few opportunities for companies to get their hands on a prize of this size and international scope.

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There are other conglomerates in the Smart Building Technology business that will be taking a close look at whether they should challenge the offer on the table and neither should we dismiss multinational private equity, alternative asset management and financial services corporation’s such as the Carlyle Group in taking an active interest here.

Companies like UTC could now be analysing this merger both as a threat to their existing Fire and Security Operation or an opportunity to buy and significantly increase their existing operation.

What is debatable is whether other US-based companies will be attracted to lower their tax bill through an inversion, which allows corporations to acquire foreign domiciled companies and reduce their tax rates by shifting their legal and global headquarters to Tyco’s in Ireland.