KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Should you be willing to buy fire alarm accounts that have no or poor contracts
June 3, 2023
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Should you be willing to buy fire alarm accounts that have no or poor contracts
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Ken:
Over the last year I have had 2-opportunities to acquire 2-companies.
One company I knew the owner and the other was due to a ‘head hunter’ type of company. The 1st company was a long time fire alarm competitor. He and his wife came in my office and he put on my desk a file folder stating – Joe, here is the printout of my accounts. I left the folder alone and asked, I need to see a copy of the agreement you use. The response shocked me – “Oh, we don’t need contracts said the wife” – the customers call and we come out and do the work.
I inquired, what if there is an ‘OOPS’?
The only time there was an issue was when the waterflow switch was improperly installed and I was left out of the legal entanglements…..he answered.
At that point I informed them I would think about the purchase and would get back to them. He picked up the file folder and they left my building. I found out yesterday they had sold the company to a large (huge) regional firm that apparently did not understand the time bomb they had just acquired as much of the customer base was governmental and the owner had been known to repair printed circuit boards when a component went bad. (*YIKES!).
The second company had a nice sized ‘book’ in an adjacent town about 45-minutes away from my office. Since I will be expanding our AES network in that area, this seemed to be an IDEAL expansion fit as the owner wanted to retire. HOWEVER, when the issue of ‘I want to see a copy of the contract’ – the same answer of ‘we don’t use contracts’ presented itself!
I’m amazed at the these two ‘business people’ who want to now sell their businesses for large sums of money without a GOOD contract that their insurance company will approve!
Without a good contract for your insurance company to hang its hat on – how do you expect to have E&O insurance?
I remember the time one insurance announced “WE DON’T REQUIRE ANY CONTRACTS!!!” There was dancing in the aisles as the business rolled in. THEN THE CLAIMS STARTED TO OCCUR!!! This insurance company CLOSED IT’S DOORS AND ALARM COMPANIES WHO HAD ALREADY PAID ON THEIR POLICIES LOST THEIR MONEY!!!
*This insurance company was acquired by another insurance firm that went about restructuring everything so not to have the same issues of GOING OUT OF BUSINESS!!
Ken, bad things DO happen to GOOD alarm companies and their owners!
I was sued when the pawn shop owner refused to go down to the business (*my Central Station Dispatchers called PD THREE TIMES, and the owner TWICE with him saying “it’s just your junky system, make a service ticket and leave me alone the rest of the night) and the next morning – SURPRISE!!! STORE EMPTIED OF ITS VALUABLES!!! The trial took 2-attorneys (1st one had a coronary during my deposition – i.e.; I would tell people, “Joe has an angel sitting on my shoulder – don’t mess with me!” AND 3-Judges and 2-juries as the 2nd Judge sent the case back to the 1st Judge due to the 1-year disclaimer clause (*so, I guess we made Missouri Law!).
In the end, the Jury found FOR Jade Alarm Co. and then the formed subscriber had to PAY US for the balance of the contract and our attorney fees!
No contract, no protection (*let’s see, how much is your HOUSE AND VEHICLES INCLUDING YOUR PERSONAL CAR really worth????!!!) and forget about getting ‘top dollar’ when you want to retire to the beach!!!
Just my 2-cents about CONTRACTS!
Your humble scrivener….
Respectfully,
Joseph (Joe) Pfefer, President & Founder
Jade Alarm Co.
CELEBRATING 50+YEARS!
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Response
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Should you be willing to buy fire alarm accounts that have no or poor contracts; It really boils down to your tolerance for risk. The risk is potentially facing a claim, and losing, for damages exceeding not only your insurance coverage but the value of your business. That is easy to do with fire alarms, but a real possibility for other alarms as well. Burglary loss and personal injury or death in alarm cases often seek damages well into the millions, far exceeding what most alarm companies carry in insurance and beyond the value of the business.
I’d like to comment on one obvious difference we see in potential buyers of alarm accounts, and I think it has a bearing on the risk tolerance. Joe started his alarm business over 50 years ago, probably with an old screwdriver and knee pads; today he sits on a sizable and reputable alarm business worth no doubt a small fortune. His tolerance for losing it all isn’t that high; in fact at his stage he has no tolerance, nor should he. But some “big regional” alarm company bought the accounts. What’s its tolerance level? Well who exactly is behind a “large regional” alarm company? Is it the corporate executives or the hedge fund executives who make the decisions? So what I wonder is what skin do they have in the game? Joe has his life’s work and retirement at stake. They have their job, maybe, certainly not what Joe has at stake. They may be willing to accept enough risk to make the right deal; after all, it’s not really their money, their livelihood or their retirement at stake. And another consideration is that their business might very well carry a lot more insurance than Joe’s business and could also absorb a lot more damages over the insurance if necessary.
It seems like a lot of the accounts that were for sale were government accounts. While many government agencies and municipalities will sign an alarm contract [I negotiate one almost weekly], many will not; just like some large institutional accounts. It often depends on how badly the customer wants your company. Of course if you don’t have contracts then you don’t have one to present and there is no issue, because the municipality or institutional customer or any customer isn’t going to say, “hey, you sure you’re will to do this fire alarm work without a proper contracts?”
Another thing we don’t know are the actual terms of a deal when there aren’t proper alarm contracts. I’ve had plenty of deals like that; Also, where not all accounts have proper contracts; sometimes none. Sometimes the deal is structured with a low multiple; sometimes the seller has to get contracts signed and sometimes the buyer agrees to try and get contracts signed and has the right to kick back those customers who don’t sign.
There’s reason shoes come in many sizes. One thing is for sure, any alarm deal goes much smoother when seller has Kirschenbaum Contracts™ for sale.
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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
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