August 2, 2011
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Question
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Ken,
By not naming an arbitration firm do you run the risk of getting an arbitrator that is not an attorney and/or someone who does not understand the contract terms? Seems like an avoidable risk with a little prior preparation.
Bart A. Didden, Executive Claims Manager
SARRG - Security America Risk Retention Group
President
U.S.A. Central Station Alarm Corp.
Central Station Offices in NY, CT & MINUTE
Bdidden@usacentralstation.com
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Ken:
In your e-mail you said you were including the arbitration clause, but I didn't find it. Can you send it for us please?
Larry Heuvelman, CGR, CR, ROI, President
OneHomeCinema
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Answer:
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Not all arbitration or mediation programs have the same criteria or standards; they are private businesses and you need to know their product and service before selecting them. The selection is usually done in the contract, long before anyone gives any thought to the process. Most subscribers don't sign contracts with the thought of defaulting. That's one reason the default provisions in the contracts can be so explicit and strong.
One arbitration program that is geared to the alarm / security industry is Arbitration Services Inc. It's rules are found at www.natarb.com. This is the company selected in the Standard Form Contracts. The company does not operate in all areas presently but if you want to include the arbitration provision the company could expand it's coverage.
The clause reads like this:
"At the option of either party any dispute between them, shall be determined by arbitration administered by Arbitration Services Inc. pursuant to it's commercial arbitration rules at www.natarb.com."
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selling alarm business - valuation of contracts
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Ken
I spoke with a well recognized alarm broker (and others) about selling my company and the one thing that stands out is the term of contract. According to this broker, the contract is worth the same multiple whether the contract is 3 years, 5 or more. Even contracts that have reached the end of the initial term and are now on 30 day month to month have the same value. So according to that line of thinking, a contract that has an initial term of 30 days and defaults to month to month has the same multiple value as any other. I was surprised because a term of 84 months has got to be worth more than a term of 36 months. It's simple arithmetic.
According to this broker, just because your contract is enforceable doesn't make it any more valuable. I for one would run away from any broker that subscribes to that type of valuation.
We use your contracts for many reasons: to protect our company, assure contract fulfillment and add value.
I will find a different broker because there are other companies willing to pay for a company that dots all i's and crosses all t's!
By the way, I know you receive compliments on your forum daily but I wanted to express my sincere gratitude for you reaching out to the industry. I realize that you profit from it as well you should but you really are helping those of us in the trenches. I have learned so much from you and your readers feedback, it has made our company better.
Thank you,
anonymous, on request
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Response
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I think you have part of it close to right, but not all of it. Contract valuation does not depend on the remaining term of a contract. The medium age of the contracts is a factor, and a buyer would prefer contracts that are in their original term rather than a contract that's been around a long time and is in renewal, or worse expired.
But, assuming most contracts are within original term a buyer could very well be willing to pay a multiple across the board for all contracts.
An important valuation criteria however is the enforceability of the contracts. Unenforceable contracts have much less value; sometimes half what you could otherwise get in the multiple. It makes no sense to continue to use outdated or poorly worded contracts. If you don't think that your contracts are the most important part of your business, the most important part of your installation, then give it some more thought. Do you think your buyer is going to really care which manufacturer of equipment you used [as long as its standard equipment], which central station you are in [as long as they can move to theirs], what your sticker looks like, what name you use? Do you think the conversation is going to start with, "do you have contracts; let me see them?"
Of course a proper contract is not only useful at time of sale. If you don't have a proper contract you may never get to manage your sale; one of your creditors might be conducting that sale after getting a judgment against you that exceeds your insurance coverage [assuming you have insurance coverage]. Get your contracts at ALARMCONTRACTS.COM