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Comments on building equity in your company beyond the RMR model
November 5, 2019
Comments on building equity in your company beyond the RMR model from October 30, 2019
            Up until very recently I would have answered your client’s question much like you did- the value in the company will be contained in the monitored accounts. Put another way when you remove the monitoring revenue and related costs from the income statement the company does not make any money. 
            However recently I have seen scenarios where  a valuation done on a company like the one mentioned using a multiple of normalized earnings rather than a multiple of RMR arrives at a higher value and I think on balance a fairer value. Usually this is because the company has enough installation and service revenue to add some value beyond the monitored accounts.
 Victor Harding
Harding Security Services Inc.
Toronto, ON   M4T 1A3
            Thanks again for all you do to educate the growing Life Safety Industries.  Yes Most of the Buyers of Alarm Security Businesses are still focused on the R.M.R. as their focus point.  Today I have about 16 Life Safety Businesses for Sale.  About 2 of them do not have much R.M.R. but they are doing a lot of Integration Business and we are selling them at a 4 or 5 times the EBITA or net income.  We are able to get SELLERS a much better price when we focus on their “Profit Centers”.  
            Collectively there are about 50 “Profit Centers used by the LIFE Safety Industries. The Average Alarm-Security Business has 8 to 12 Profit Centers.  When an Alarm-Security Business Buys a Fire Extinguisher Business which adds another 6 Profit Centers to their Business, their Alarm Sales go up by about 33% from the leads from the Fire Extinguisher Route Sales People. We bring a dozen plus reason for a Buyer to pay a higher Price for that life Safety Business that is for sale.  One of the key elements I use to get a higher price for their business is showing that if you are Installing 30 Installation per month the Business is worth more than a Business that only does 10 per month.  I recommend that if someone is interested in Selling, they need to get a “TUNE-UP” be for they list for sale.  I like to make about a dozen suggestions as to what they should focus on to get a much better Selling Price. 
 Dennis Riley
cell 240-462-8220
            Alarm companies shouldn’t get confused with expectations of having their business evaluated in different ways looking at “profit centers” or EBITDA.  Typically you will find that the EBITDA and RMR approach arrive at pretty much the same price.  How can that be?  Easy.  It’s because the EBITDA factor and the RMR multiple is a fluctuating rate.  If EBITDA is based on 3 to 6 times and RMR based on 30 to 40 times, all you need do is manipulate the multiple to get to the same purchase price.
            Most buyers are not stupid.  They are buying your business to make money, not enrich you.  No matter how the business is evaluated and no matter how a price is arrived at, even a dull-witted buyer will look beyond the closing date and try to estimate if the business can run profitably considering the debt service and cost of money.  
            It should be obvious that different kinds of businesses can and should be valued differently.  Alarm companies have morphed into something more than electronic alarms that are monitored.  The advent of cameras and access control now supplement most traditional alarm companies.  Some then venture out to the fire protective business, installing sprinklers and other suppression systems – which really has nothing to do with the alarm industry except for the monitoring of the activation of those systems or integrating the activation with activation of the alarm system.  Similarly, the “integration” businesses are more home automation – lighting, home entertainment, commercial entertainment – video and audio – and activation of every outlet.  The money is more in the installation than any recurring revenue.  
            Keep in mind that buying a business that is valued for its history of profitable installation work is much different than buying an alarm business that consists of recurring revenue monitoring accounts.  Monitoring accounts sell like negotiable paper – there are usually plenty of buyers willing to bid on the monitoring contracts.  When buying a business that depends entirely on “good will” instead of a steady stream of monitoring contract revenue, there are other issues to consider, and these issues are well beyond the purview of this article.  Here we are concerned with traditional alarm business.  I am not going to opine on your business because you also want to sell your Uber vehicle with your alarm accounts – and that goes for fire suppression or prevention systems and million dollar home entertainment systems.

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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