KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Are third party charges included in RMR calculation on sale of accounts
December 7, 2020
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Are third party charges included in RMR calculation on sale of accounts
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Ken,
I would like to remain anonymous. My question is regarding third party fees, Uplink, Telguard, etc.) in relation to selling an Alarm business.
I was told a buyer will exclude the costs of associated third party fees before calculating the purchase price. For instance, Ii I am charging $35 a month to a specific account, and that account is using Uplink Cell services, which will cost the buyer $3 a month to maintain the Uplink service on that account, the buyer would calculate the purchase price for the account at $32 x negotiated multiple.
Is this a standard practice for buyers in calculating a purchase price?
Thank you for your input
Anon
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Response
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The quick answer is that third party charges are typically excluded from the RMR calculation. In other words, your example above is correct. If the RMR charged is $40 but alarm.com is getting $10, the RMR for the calculation is typically $30.
But every deal is unique and the calculations manipulated by the parties, usually the buyer. How? Well the buyer for the above example would offer 42 times, which sounds a lot better than 32 times to a seller. But this buyer intends to deduct the third party charges, which may affect most if not all of the accounts. Another potential buyer may offer 32 times, but won't be deducting the third party charges.
Customer and practice does change. Not too long ago it was typical to deduct the central station charge for basic monitoring. The practice now is not to exclude the central station charge, though a potential buyer certainly knows that cost is involved and takes it into consideration, either mindfully, or intuitively.
Ultimately the buyer has to believe that the purchase price represents a good investment. There are many factors that can influence whether the acquisition makes sense besides the multiple paid. For example the buyer may believe the accounts offer a strategic move that will enhance other opportunities for the buyer.
If you are considering a sale, seek advice from someone who understands this industry. K&K's transactional team of experienced lawyers is a phone call away. Make the call.
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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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