KEN KIRSCHENBAUM, ESQ ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE You can read all of our articles on our website. Having trouble getting our emails? Change your spam controls and whitelist ken@kirschenbaumesq.com ********************** Is there difference valuing low RMR accounts August 3 2023 ****************************** Is there difference valuing low RMR accounts ****************************** Ken If I want to sell accounts is there a sale price difference between an account that is being billed $40/month vs $35/month (as an example) -assuming they are both basic alarm.com accounts with no video and monitoring? Or what about $30/month vs $45/month? Anon ********************************** Response ********************************** The multiple applies to the net RMR, so higher RMR yields higher price. The only time a multiple will drop is when the buyer thinks the pricing so low the account would struggle to make a profit. I've seen RMR charges so low that buyers don't want to consider the accounts. The opposite is also an issue, an account with an unusually high multiple. A buyer may not want to gamble on that account. A recent deal had one account at $2000 RMR when the overall account RMR was $26K. The one year guarantee offered by seller on all accounts was rejected by the buyer and this account was given a two year warranty, 24 months [the multiple on the deal was 26]. We see this analysis when the RMR is for repair plan and inspection service, both of which have indeterminate expenses associated with providing the service as opposed to a monitoring account that has a relatively fixed expense [such as the alarm.com and central station charges]. This really is an assessment of profit the account is actually yielding. Perhaps the most dramatic example is stationary guard service, where the cost of providing the guards eats up most of the charges to the customer. But repair service and inspection plan RMR that isn’t priced right can end up ending with a loss rather than profit. Keep in mind that even monitoring accounts have what we can call “hard costs” and “soft costs”. The hard costs would be the cost of the communication device and installation [especially if supplied without charge] and the actual monitoring charges. The soft costs would include the alarm company’s office rent, insurance, clerical personnel, and general overhead. An alarm company would be hard pressed to operate a monitoring only retail business when the charge to customer is $8 a month and the central station charge is $7 a month. Even 10,000 accounts comes to $80,000 a month and if you think about billing monthly and incurring a 66 cent stamp charge you end up with 34 cents, and that’s only $3400. Now figure the envelope and the clerical personnel to send the invoice and record payment. You’re losing money and if this is your model then some other part of the operation is supporting the business. And, if you think you have $80,000 in RMR to sell at 35 times, you’re way off. Even if you think you have $10,000 in RMR, you’re not going to find a buyer. While buyers may not discuss soft costs as openly as hard costs when tossing around a multiple, that is certainly on the buyer’s mind. In fact some buyers are using EBITDA valuation in addition to or in place of the RMR calculation. This is especially the case when the selling alarm company has significant revenue from non RMR revenue, such as sales for alarms or other related services, such as IT or non-security audio and video. For quick valuation go to WhatsMyAlarmCompanyWorth. To build you company value go to https://www.kirschenbaumesq.com/page/alarm-contractalarmcontracts.com. And yes, K&K will represent you as counsel if you're a seller or buyer, and will also broker the deal at significantly reduced brokerage charge. Give Ken Kirschenbaum a call to discuss. 516 747 6700 x 301. ***************************** STANDARD FORM AGREEMENTS: To order up to date Standard Form Alarm / Security / Fire and related Agreements click here: www.alarmcontracts.com *************************** CONCIERGE LAWYER SERVICE PROGRAM FOR THE ALARM INDUSTRY - You can check out the program and sign up here: https://www.kirschenbaumesq.com/page/concierge or contact our Program Coordinator Stacy Spector, Esq at 516 747 6700 x 304. *********************** ALARM ARTICLES: You can always read our Articles on our website at www.kirschenbaumesq.com/page/alarm-articles updated daily ************************* THE ALARM EXCHANGE - the alarm industries leading classified and business exchange - updated daily. https://www.kirschenbaumesq.com/page/alarm-exchange ************************* Wondering how much your alarm company is worth? Click here: https://www.kirschenbaumesq.com/page/what-is-my-alarm-company-worth ****************************** Getting on our email list / Articles archived: Many of you are forwarding these emails to friends or asking that others be added to the list. Sign up for our daily newsletter here: Sign Up. ************************** 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
