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 ****************************** more on how buyers figure value of alarm accounts for acquisition January 23, 2023 ************************* more on how buyers figure value of alarm accounts for acquisition **************************** Ken What I have seen happen on alarm account deals in Canada differs somewhat from is described in the article below: · Although most buyers have their own method of assessing a block of accounts for value and determining an ROI [return on investment] on a possible purchase, I am not sure many use a DCF [Discounted Cash Flow] method for doing so. · Secondly most buyers in Canada will ask about all the key value indicators up front such as average rate on the accounts, % on signed contract and % on call forward line and make the Seller attest to these in the Letter of Intent rather than dock the seller multiple during due diligence process. I tell potential sellers to address these points before considering a sale. · Thirdly today in Canada there are not many deals happening at 26X the RMR on the account base unless the block of accounts is very small and not in great shape. Most of you probably know this. I have not brokered a deal for less than 30X in the last 10 years. · Additionally on any article about the value of alarm accounts I always like to draw the reader’s attention to the importance of higher rates as they relate to value because I don’t think this is emphasized enough. . Having signed contracts is important to getting a deal done at all but having higher rates on your accounts is a much under- appreciated way to get a higher price. Do the math on how long it takes to get your investment back on $35 accounts versus $25 accounts and you will see why. · Finally in Canada buyers have long since woken up to the added benefits of having their auto-pay accounts be taken out of bank accounts rather than off credit cards which charge for the service and where the expiry dates have to be continually updated. Just some thoughts and experience from north of the border. Regards, Victor Harding Harding Security Services Inc. Toronto, ON M4T 1A3 416.925.7474 victor@hardingsecurity.ca www.hardingsecurity.ca ************************** Response ************************** I suspect that the analysis for Canadian companies is similar if not identical to US companies. What’s the multiple is the perennial question in the alarm industry. The trouble is that the multiple depends on many factors that the seller is really in charge of and responsible for. Victor hasn’t had a deal for less than 30 times. That doesn’t mean you should expect that multiple or settle for that multiple if your accounts are worth more. I “broker” deals too in the sense that I’ll introduce sellers and buyers and help structure the deal, but I am always representing one or both as counsel on the deal. I also value the alarm accounts [https://www.kirschenbaumesq.com/page/what-is-my-alarm-company-worth]. I’ve emphasized it many times; if you want top dollar for your alarm accounts you need to have followed best practices. That means proper contracts, E&O coverage, your own lines or movable lines at the central station, quality equipment, installations and services, quality customers with a low attrition rate, properly priced jobs so you’re making money, employees who have signed an Employment Agreement, right to sell accounts without being burdened by rights of first refusal [yes some central stations are still trying to get that right in their small print Dealer Agreement], among other practices that enhance your business. As mentioned by Victor, buyers are looking at return on investment. Return on investment is not necessarily what the seller has been able to make, but what the buyer believes it will be able to make with the account base. ************************ To order up to date Standard Form Alarm / Security / Fire and related Agreements click here: www.alarmcontracts.com *************************** To order up to date Standard Form Alarm / Security / Fire and related Agreements click here: www.alarmcontracts.com *************************** CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY - You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304. *********************** ALARM ARTICLES: You can always read our Articles on our website at ww.kirschenbaumesq.com/page/alarm-articles updated daily ******************** THE ALARM EXCHANGE - the alarm industries leading classified and business exchange - updated daily ************************* Wondering how much your alarm company is worth? Click here: https://www.kirschenbaumesq.com/page/what-is-my-alarm-company-worth ****************************** Getting on our Email List / Email Articles archived: Many of you are forwarding these emails to friends or asking that others be added to the list. Sign up for our daily newsletter here: Sign Up. You can read articles and order alarm contracts on our web site www.alarmcontracts.com ************************** Ken Kirschenbaum,Esq Kirschenbaum & Kirschenbaum PC Attorneys at Law 200 Garden City Plaza Garden City, NY 11530 516 747 6700 x 301 ken@kirschenbaumesq.com www.KirschenbaumEsq.com
