September 29, 2011

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If this topic interests you and you're in NY for the ISC East show you may want to attend the round table seminar on November 2, 2011. See below for details and registration.

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re: Buying/Selling subscriber accounts- advice from an expert

 

Ken

I read with interest the comments that Ron Davis made about buying or selling subscriber accounts on July 25 /11 and think he was right on every point.

I work up in Canada as an independent broker much like Ron Davis and his associates. I want to add a couple of comments to what Ron had laid out :

 

1. Canadian alarm dealers should follow the US lead on the need for contracts- Having signed contracts for all your subscribers is axiomatic in the US - but not so here in Canada. Regardless I always tell a Seller that having a proper monitoring contract signed by each subscriber is critical to getting the best price for your subscriber accounts. There are Buyers in Canada that do not insist on having a signed contract on every account. But there are also Buyers that do insist on contracts. To access all the best Buyers and therefore get the best price, it pays to have signed contracts. Also pertinent to this forum, in Canada that signed contract should have at least the following important clauses in it if you intend to sell: the waiver of liability, a clause indicating that the contract is assignable, an auto-renewal clause (although I understand not all States accept this) and a clause enabling the person owning the contract the ability to raise rates. (Hope I have not missed an important clause.)

 

2. Call forward lines are important  As a Seller you should try to get all your accounts programmed to your call forward line and then to your station before you sell. It not only makes selling much easier- Buyers in Canada will pay more if you have them that way. They understand that to individually transfer accounts over to a new station not only takes a lot of effort( and sometimes does not get completely done) but the transfer process can cause problems and can give customers an opportunity to cancel.

 

3. How to fight against hold backs- I liked Ron's comment about hold backs and had not thought about this issue the way Ron has laid it out until I read his piece. In Canada, the bigger Buyers have come to just assume that they can get this 10-15% hold back. Some even ask for more. If I representing a Seller and run into this demand, I do everything possible to mitigate the Seller's losses due to post- closing attrition. For example, if the account base has a lot of subscribers who pay by automatic monthly bank or credit card withdrawal( as is the case in Canada), I push to get the holdback/ attrition guarantee reduced to less than 12 months. The Buyer in this circumstance can see payment experience much faster and does not need to have a full 12 month hold back. Secondly, I work hard to get clauses inserted into the purchase and sale agreement that force the Buyer to notify the Seller of subscriber cancellations promptly so that the Seller has a chance to retrieve the account. I also try to insist on a clause in the purchase agreement that says that customers that cancel due to the Buyers post-closing service should not be deducted from the hold back. I recognize that determining who is at fault is difficult at times but in every case where I have put this clause in, it has helped the Seller hold onto part of his hold back. Finally if the Buyer is insisting on a 10% hold back for attrition, I bargain ( much like Ron has suggested) for a certain % of attrition post closing to not count against the Seller. However Sellers please note. All of these steps are never as good as not having a hold back at all if you can get it.

 

Ken, I know there are many in the alarm industry up here in Canada that read your column religiously so please keep it going.

Victor Harding-CA

Harding Security Services Inc

Tel- 416-925-7474

Email- victor@hardingsecurity.ca

Website- www.hardingsecurity.ca