This is in regards to the article on July 29 2016 on length of term of contract.
    I wonder if anyone has ever built a purchase price around length of customer rather than length of contract or just total RMR?  It would be an interesting exercise to see if the long term goals of purchasing companies (for me which includes a good customer that stays with us, no hassle about paying, low service needs) are better met by the income stream created by longer term customers that stay with the new company just as they did for the old company. 
    You’d have to have a fair amount of data to figure out but I bet overall the hassle factor of “fresh” customers (take that as newer customers) in the life cycle of their agreements create more back room expense with chasing them for money, canceling their contracts, overall expectations of the new company, service calls, etc.  I’m not saying I want to purchase agreements of Geriatrics but I’d way rather have a company with 5-15 year customers over fresh RMR any day.
Steve Sopkin, President
Mijac Alarm
    Excellent point.  What's worth more, a new contract with a 5 year terms, or a long time customer that is on month to month renewal?  Arriving at a purchase price in the alarm industry isn't really a science; not a precise calculation with defined criteria.  We'd like to say it is, but I don't believe it.  Perhaps in the 50 million dollar plus deals with participation from the finance companies.  Why do I say that when it sounds so easy to value the alarm company?  After all, the assets almost exclusively consist of subscriber accounts or contracts and the price is arrived at by applying a multiple to the RMR.  Simple math.
    OK sometimes it gets a little complicated because you have to adjust the RMR to "net" RMR.  Though sales tax is always deducted, other expenses incurred by the selling alarm company to provide the monitoring are not always deducted to arrive at net RMR.  So sometimes central station charges are deducted and sometimes not.
    Sounds like I am making the case for a precise calculation.  Just look it up and apply the calculations.  But here is where other factors, like the actual customer base, long time customers, new customers, proper contracts and how they were executed, come into play.  And how these factors come into play is in the offering multiple.  Multiples that range from 18 times to over 40 times obviously have many considerations.  I submit to you that in many if not most cases these factors are considered intuitively; it's a gut feeling that causes the multiple to jump out at you.  You instinctively know that the seller's accounts are worth only 22 times, certainly not 38.  Other times you know that the accounts are well worth the 40 times asking price and you're happy to pay it.  
    What makes these accounts worth more, or less, multiple?  While I could describe different accounts, comparing residential to commercial, intrusion to fire, monitoring to repair service or leasing, home automation, long term contracts to old time customers on month to month, the multiple is also going to depend on the buyer.  How is the buyer going to integrate the seller's accounts into the buyer's operation; what are the payout terms, the guarantee; is there enterprise value; what's the potential for increasing business from the existing base?  These and other issues are tossed around, consciously or intuitively, to arrive at an offering multiple.  
    I know I often stress how the Standard Form Agreements will build equity and add value to your business, and I know it's true.  The Standard Form Agreements are one of the major factors that come into play with calculating the multiple.  Often times its one of the few factors you can actually control when it comes to insuring the highest value for your most significant business asset - your alarm contracts.