KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and whitelist ken@kirschenbaumesq.com
******************************
How to value Repair Service and Inspection RMR / Contract sale on now
January 3, 2023
**************************
How to value Repair Service and Inspection RMR
***************************
Ken,
What multiple would be applied if I sell my alarm contracts for the service contracts and fire inspections? If I can get a 3-year fire alarm inspection contract signed from Customer at $30,000 per month. I’m hoping to get it signed when they renew the monitoring contracts (up in February).
Name withheld
**************************
Response
**************************
There’s a lot that has to be considered when it comes to Service Plan RMR contracts and Inspection RMR contracts. Costs associated with monitoring RMR is fairly easy to fix and anticipate; you know the profit on each contract. But repair service plans are less certain, even though the covered repairs are limited to ordinary wear and tear. Inspection RMR is slightly easier to estimate because you can estimate the inspection cost for labor and perhaps some material [though inspection does not include repairs]. So the margin is easier to calculate for monitoring, less so for inspection and even more uncertain for repair service plans. Thus, the “multiple” for inspection and service will generally be less than for monitoring RMR.
If service and inspection make up a small percentage of the RMR then a buyer is likely to lump all the RMR together and offer a blended multiple for all RMR. The higher the percentage of service and inspection RMR is, the lower the multiple is likely to be when a blended multiple is offered.
If the service and inspection RMR is significant enough to warrant a separate calculation then expect at least a 5 point reduction from the multiple offered for the monitoring RMR. If, for example, the multiple offered for monitoring RMR is 35 you can expect the offer for service and inspection RMR to be a 30 times multiple.
If the service and inspection RMR comprises the bulk of the RMR then you have a much more difficult time calculating the value. In fact the valuation method may need to be EBITDA, not RMR. In other words, a buyer will need to dig deep to determine the seller’s profit margin and estimate the buyer’s anticipated profit margin. When dealing with a large inspection and service RMR, which $30,000 for an account certainly is, it better be a very significant customer with very deep pockets, because many alarm companies would not want to step into that exposure, even though the revenue appears lucrative. More than likely the customer must think it’s a good deal – for the customer – to cap its repair and inspection expense to the set RMR. If this is a significant part of the selling portfolio you might be looking at a multiple offer of 20 or 25, if you can find an interested buyer.
One thing is for sure, using the Standard Form Agreements will get you the most value for your contracts. Get them today, on sale; don't miss out.
**************************
CONTRACT SALE NOW THROUGH JANUARY 13, 2023
Join the Concierge Program before you order contracts and get additional 10% discount. Join here: https://www.kirschenbaumesq.com/page/concierge