KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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Comment on buying non-contract accounts at discount
April 4, 2023
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Comment on buying non-contract accounts at discount from article on March 28, 2023
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Ken
Responding to Mike Williams comment that buying RMR with no contracts “present an opportunity for a savvy acquirer to snap up bargains.” Theoretically he is correct. His problem, as you pointed out, is the method. Plenty of alarm companies have gotten a tutorial on Murphy’s Law when they found out that a loss occurred on their one (in four thousand) accounts without a good Monitoring Agreement. No smart business owner wants to roll the dice with an empty file cabinet, and, in the best case, explain to their insurance carrier what they just did. .
His scenario plays out all of the time, but with a major difference. Buyer purchases the accounts as the customers sign an acceptable Monitoring Agreement. Buyer pays Seller weekly or monthly or, pays when all RMR has been contracted. Buyer gets the protection that they need, Seller gets a reasonable multiple (but definitely less than if they would have headed into the transaction with good Agreements in place), and they all live happily ever after.
We assist Buyers and Sellers in doing this all of the time. It takes 3 – 4 months to circulate the new Agreements… And we always use “Kirschenbaum Agreements.”
Mitch Reitman
817 698 9999 XT 101
Reitman Consulting Group
http://www.reitman.us
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Response
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There are a few subtle points I want to emphasize.
I frequently get a call from an alarm dealer that starts with “I need a monitoring contract”. Invariably these alarm dealers have been referred by a central station that is either already monitoring the dealer’s accounts or considering accepting the dealer for monitoring services. Essentially the central station has advised the dealer that unless it gets a proper monitoring contract the central station won’t accept the dealer or continue monitoring for the dealer.
My advice to the dealer is consistent; “you need the All in One because you need contractual protection not just for the monitoring service but for all your services, which includes sale, installation, service, inspection, repair and monitoring. The All in One forms cover all these components of your services. The pin point need for a proper contract is often suggested by the alarm dealer’s vendor [defined as those who provide services to the alarm dealers, from insurance companies, central stations, manufacturers, etc]. So a monitoring center focuses on a monitoring contract. A manufacturer is focused on a sale and installation contract. An insurance company is or should be focused on all services, and an alarm dealer needs to be focused on all services it provides. Why? Because we don’t always know why an alarm customer has suffered a loss. Sometimes we know its equipment failure, sometimes communication breakdown, sometimes delayed response. There are a myriad of reasons why customers suffer losses that alarm systems and services are designed to detect. The alarm dealer needs proper contractual protection for all aspects of its services, not just the monitoring service.
So why do so many alarm dealers call asking for a monitoring contract? Many central stations refer their alarm dealers to K&K. They are doing their dealers a service and they are protecting not only the central station but the dealer as well.
A central station that provides its dealers with a form monitoring agreement does such as disservice to its dealers that the only recommendation I can give is, you need to find a new central station. The central station form for monitoring protects the central station, sometimes only the central station. When I write the central station’s monitoring contract I do extend some protection to the dealer, but even then the central station provide monitoring contract adds no equity value to the dealer because, for one thing, it won’t even have the monitoring charges specified because that’s not something the central station necessarily cares about. What the dealer charges for monitoring is not the central station’s concern; only what the central station charges the dealer is of concern and the dealer sure doesn’t want the alarm customer to know that number.
If you sell your accounts, or buy accounts, that have no or imperfect contracts, you can, as Mitch suggests, buy only the contracts as they get signed over time. Problem is that too many deals are done where the buyer takes over the accounts but pays for them only as they are properly contracted, either by the seller or the buyer. This leaves the buyer at jeopardy because it is servicing the customer without contractual protection. In that scenario the seller needs to continue in operation until it gets its customers under contract. Some buyer would prefer not to pay the increased multiple for the newly contracted customer, but accept the risk and get the customer account at a discount, thereby accepting the risks associated with providing alarm services without a property contract. That dealer needs to understand that he is implicitly asking others to also accept that risk, including the monitoring center, employees who depend on him for their job, his wife and kids. Lucky for most dealers the central station, who receives only a small part of the monitoring charge, is not willing to accept the risk and will insist on a proper contract. Think about it. A central station has thousands, hundreds of thousands, of monitored accounts for which it receives a nominal monthly charge. Why would a central station be willing to risk its operation because a dealer doesn’t use proper contracts? The smart central stations don’t and if you’re a dealer who has slipped through the cracks and is getting away with no contracts or unacceptable form contracts then trust me, your day will come when you regret the day, and every day, that you ignored the advice to get and use proper contracts.
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STANDARD FORM AGREEMENTS: To order up to date Standard Form Alarm / Security / Fire and related Agreements click here: www.alarmcontracts.com
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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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