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comments on valuation of AES radio accounts August 1, 2017

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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comments on valuation of AES radio accounts
August 1, 2017
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comments on valuation of AES radio accounts from July 22, 2017 article
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Ken,
    Responding to Anon’s question about the value of AES accounts.  I have several clients who use AES, it is a great way to avoid phone line and monthly cellular and radio charges, but Anon is correct, it can cause a degree of central station dependence.  I have sold two companies for a large premium because the Buyer wanted their AES network so that they could add additional AES accounts in that market.
    The best way to handle AES is to have your own network with the radios “crystalled” to your frequency and either have your own receiver, or have your central station maintain it.  This is easier said than done as central stations, for obvious reasons, would prefer that you use their network.  I have worked with some of my clients to establish their own networks, the best way is to do it from the start, but if you have to convert you should start around the location of the receiver or IP link and build the network in concentric circles around this location.  When converting accounts you should identify the customers that you want to replace and do the conversion during a service call or annual inspection.  If you use this approach it is possible to make the conversion in a year or so.
    If your AES account base is too small to support your own network, you can avoid reprogramming issues by selling to a Buyer that monitors at your current station.  If you have more than a handful, but not enough to build a network, you may be able to get a prospective Buyer to leave the accounts at your current station and continue to monitor there.  This may result in a cost reduction but not in the neighborhood of the reduction that you would see if the Buyer has to move the accounts.   This is also a good solution if you sell to a Buyer who is outside of your geography or does not have an AES network.  Straddling multiple stations is not good for a Buyer and they will ask for concessions for these accounts, usually in the form of a lower multiple.
    If the Buyer wants to convert the accounts there will probably be a reduction in price.  The best way to approach conversion is to let the Buyer “re crystal” the radios during service calls and annual inspections.  This minimizes the labor time and may give you a smaller deduction from your sales price.
    The important thing here is to have a plan before you sell.  Addressing items such as these, even 12 months before you sell, can turn “issues” into benefits.  Additionally, when you visit your customer to perform their free “radio upgrade” you should have them sign a new monitoring agreement.  Having a brand new “Kirshenbaum” Agreement may result in a selling price increase that more than covers the cost of the radio conversion.
Mitch Reitman
Reitman Consulting Group
Fort Worth, TX
817-698-9999
http://www.reitman.us
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Ken,
    In response to “Anon” (again) about the value of AES radios. I disagree with the assumption that AES may not be worth the same as other accounts.  AES has many benefits that you do not list. No sunsets on the technology, no inflated monitoring fees for activity on the cellular networks, which allows the profit margins to be greatly expanded to the benefit of the alarm company.
    Portability between central stations is simple when the alarm company owns their mesh and receivers are not that expensive. On the other hand portability is not simple in a “community mesh network” which USA operates in many different areas of the United States, but many of the companies USA monitors does not have the density to create and maintain the mesh on their own.
    While we are on AES, USA has hired Cliff Thompson as its National Director of our AES Mesh networks. Cliff has many years as field sales and support with AES and is the strongest addition that USA has made to support our customers using one of our meshes.  
    This is why companies like USA exist. USA is designed to “level-the-playing-field” for small to medium size alarm companies against the national and regional’s that own their own central station.  Besides monitoring, USA offers back office services such as billing and collections and answering services that is performed by highly trained central station operators that are scripted for each and every individual alarm company. And more.
Bart A. Didden, President
U.S.A. Central Station Alarm Corp.
Port Chester, NY; Milford, CT; St. Paul, MN
877-872-1266
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Response
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    Congratulations to Cliff and USA.  One issue to keep an eye on with considering the AES Mesh radio network are repeater stations.  The repeaters [and I don't profess to understand the technology or correct terminology for the repeaters] are typically located on property owned by someone other than the alarm company; often it's a subscriber who has agreed to let the alarm company install the repeater on its premises.  The relationship between this subscriber and alarm company then becomes either Landlord - Tenant or Licensor - Licensee, depending on how the agreement is structured.  For practical purposes it is very similar, though in legal theory there are differences.  You need a lawyer to properly document the relationship, so give me a call.  
    When you buy AES accounts and a network system, with repeaters, from another alarm company you need to be certain that the repeaters will  be permited to stay where they are, or you need to factor into the purchase the relocation of the repeaters.  Just something else to keep in mind.
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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
516 747 6700
www.KirschenbaumEsq.com
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