Q& A - buy-sell considerations

Question:
     Ken,

What advice can you give me if considering selling some or all of the
company's accounts?  Are there any legal ramifications (such as: system
failure or whatever after the transaction) to the selling company from
it's customers once the buying party has purchase the accounts?  What are
the pitfalls that a selling company should be mindful of?

Thanks,

Dave
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Answer:
    Dear Dave:
        The best advice I can give you regarding the sale of your
subscriber accounts or your business is to be properly represented by
counsel knowledgeable in the alarm industry, and engage counsel before you
have your first discussions with a buyer so that you know the issues that
you, as a seller, need to be aware of.  You have spent a great deal of time
establishing and developing your business and you will want to maximize
your sale price and have terms that make it more likely that you will
receive all of what you bargain for.
        Though as a seller you may think that the only issue you need to be
concerned with is getting your money, rest assured that the buyer will
introduce a myriad of issues, because the buyer is going to be concerned
with much more than just paying you.
        I am sure you won't be surprised when I tell you that one of the
first questions you will be asked by the buyer is "do you have contracts",
and the buyer is going to want to see your form contracts, know the age of
those contracts, and depending on the buyer's sophistication, whether you
have complied with laws governing the sale of the systems, and laws
pertaining to renewal terms and required notification.  The buyer will want
to know your mix of subscribers, residential and commercial, your accounts
receivable experience, type of equipment typically used, service records,
who does your monitoring, whether you have your own lines, whether you are
locked into a monitoring center, your claims experience, location of
accounts and other issues important to a particular buyer.  It may be
important to a buyer to know if you intend to stay out of the alarm
business, whether you have key employees who may compete with the buyer
should be purchase the accounts and whether your subscribers have a
peculiar loyalty to you personally that may cause them to want to shop the
service once you are out of the picture.
    You will need to consider the guarantee period and the payout period,
the hold back and the hold back terms.  Not all guarantees are the same; in
fact most are tailored to meet the specific concerns of the parties
    Though agreements for the sale of the accounts or your business
generally come in one of two forms, either asset purchase or a stock sale,
the terms of each agreement are always specific to the parties.
    I have on occasion offered to sell a "form" agreement for an asset sale
[which is the form most often used] but it should be used by you only as a
guide to see the types of issues that will likely come up in your deal;
it's not a substitute for proper legal representation.  It could of course
save a lot of time if your attorney is not familiar with alarm deals.  A
form agreement is not on my website as an offered contract so you would
have to send a request for it.  The price would be $500.