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Comment on how proprietary systems affect valuation / DIY licensing
May 28, 2019

Comment on how proprietary systems affect valuation from May 6, 2019 article
            In response to Anonymous’ question on how proprietary systems affect valuation--
            Sometimes these “restrictive contracts” can get in the way of what would have been a great transaction.  We’ve had many perfect matches torn apart because of conflicting product lines governed by Contractual Agreements. .  No matter how hard we tried to make these transactions work, manufacturers would negotiate and we ended up having to find another buyer. It’s for that reason, now, up front, we always ask if our client, the seller, if they have any binding relationships with a product manufacturer.  If so, it may limit the potential number of buyers we can bring to the table.
            We understand the positives of using these product lines but the question was in reference to selling the business.  It makes our job, as Brokers, a little more difficult but eventually we do find matches.  Knowing the relationships going in makes a huge difference.  We’ll make sure the potential buyers are aware early on and avoid spending time if there are conflicts.
            And as far as being worth less, not so.  It’s all in finding the right buyer.
            That and a lot more about buying and selling in our industry is in Ron Davis’ book.   I’d like to offer everyone on this forum a free copy of Ron Davis’ “The Start of the Deal”.  Call 847 955 2345 for a free copy.
Steve Rubin, Partner
Davis Mergers and Acquisitions Group
847 340 2555
            Thank you for offering everyone on this forum a free copy of Ron’s book.  
            Proprietary equipment and exclusive arrangements with manufacturers add an additional dimension to the deal and it’s important to address that issue right from the start to avoid wasting time on a deal that can’t proceed.  But, there is a buyer for every seller, sometimes it just takes time.
DIY licensing
            I have been trying to understand the DIY state licensing requirements. If the Central Station monitoring system is licensed for all states, is it also necessary for the alarm dealer to be licensed in each state to sell the systems when there is no installation service provided?  If so, and if there is installation provided, would that require a license and would it be the same license? 
            There is no alarm license required to sell DYI equipment in any state.  However, selling DIY equipment is not likely to be profitable enough in view of the stiff competition.  The enterprise value is in the monitoring service, and that is created and accomplished with a monitoring agreement and RMR [this would be the Nationwide DYI agreement].  So the dealer selling the DIY equipment is also going to want to offer a written contract for monitoring the DIY system.  Monitoring can be by professional monitoring through a central station or self-monitoring whereby the signal from the system goes through the manufacturer’s server directly to the end user’s smart phone.  In either case the goal is to get a written monitoring contract with RMR for the monitoring service.  
            Most dealers will use wholesale central stations that provide service nationwide.  These central stations [should] have licenses in the jurisdictions that require a license for alarm monitoring.  A dealer entering into the monitoring contract must have its own license to monitor the alarm system; it cannot rely on the central station’s license.
            There are approximately 20 states that have a license for alarm monitoring.  Most if not all of these states would also require the alarm license for installation.  It is the same license.  There would be another approximately 20 states that require an alarm license for installation.
DIY problem from May 14, 2019 article
            Everyone is concerned with the D.I.Y market.  The vast majority of those who purchase such systems would never be a typical alarm company customer to begin with.  For any number of reasons (short term condo or renter, low income ect) they don't have the money, circumstance or appreciation for a professional system.  With no real monetary investment, whatever system chosen would have no value.  If their expectations are low, they will never be disappointed.
            On the bright side, a portion of those who purchase such systems eventually want features not available with low end equipment.
John W. Yusza, Jr.

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Kirschenbaum & Kirschenbaum PC
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