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Comments - valuation of alarm accounts from Nov 13, 2013 article 

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Ken

    Responding to your thread about the value of additional services added to a company's RMR, such as video monitoring.  A buyer of RMR is buying cash flow.  If the additional services increase net cash flow, they have value.  I prefer to call video monitoring, enhanced monitoring rather than "verified."   When video is treated properly, it may result in a higher priority response from from law enforcement and that is a plus.  When a customer is has a larger investment in equipment (cameras, dvr, thermostat control, etc…) the tendancy is to use the system more.  This typically creates a more "sticky" customer, and lowers attrition.  Lower attrition is increased cash flow over time which should result in higher value.   Typical digital monitoring RMR has margins (billings less costs) of 75% to 90%.  If a dealer can double the RMR from a particular customer and still maintain a reasonble margin, the value of that account has increased.  I also believe that $60 of RMR from a single, happy customer, is worth more than that same $60 from two customers that are not as happy, margins being equal.

    This is one of many reasons why you should engage a firm from the Alarm Exchange to do a review of your company well advance of a contemplated sale.  We can evaluate your corporate status, contract quality (and existance), cash flow, service mix, and numerous other factors that a Buyer will use to set your value.  A little work by Ken's group early on, may save you a great deal of time during due diligence and may increase your attractiveness to a Buyer.  We can represent you in the Sale and bring you Buyers that are in line with your needs.

    I response to the inquiry about a list of questions to ask before buying accounts, we use a 12 page questionnaire, and that gives us a starting point.  We also perform a thorough due diligence for our clients that purchase alarm accounts( as Ronald Reagan said "trust, but verify").  You should retain an experienced due diligence team and legal counsel such as Ken's group, well before you start into negotiations.   We have participated in over 300 transactions and our people have a combined 50 years of experience performing due diligence.  We are able to do this economically by utilizing clerical personnel to do the bulk of the work, yet supervising them with one or two experienced professionals.      Purchases of alarm accounts, even small ones, are complicated and can go terribly wrong without competent advice.  Call Ken and call us and we will help you ask the write questions and evaluate the answers.

Mitch Reitman, 

S.I.C. Consulting, Inc.

Fort Worth, TX

817-698-9999

WWW.SICC.US

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Ken- 

    a couple of points as to valuation of non-traditional contracts:

 

1) generally charges for AES, AlarmNet or other similar carriers are excluded from the RMR base for purposes of calculating the purchase price; as to 3rd party central station charges, that depends; if it is a buyer who will be transferring the accounts to their own central station there should be no deduct, as they will be getting the benefit of the full RMR charge; if however, the buyer uses a 3rd party central, then he has a good argument for claiming the 3rd party fee should be excluded in the purchase price calculation (whether he wins the argument depends- its all a part of the negotiation process, which we are more than willing to assist in); back in the days when central stations actually "brought" hardwire lines from the telecos and paid a monthly fee, the pre-dominate practice was to exclude telephone line charges from the RMR for purposes of calculating the purchase price.

  

2) as to the  property manager, might try a one year term with the right to terminate on his part on 30 days prior notice if the building is sold, or the management company is replaced; alternatively, no reason he couldn't accept a month to month contract (at least its something); as to the assignability, not sure why he wouldn't accept subject to his consent "which wouldn't be unreasonably withheld", or some other similar qualifying language; also important to note that in most States, unless statute specifies to the contrary, accounts are assignable even if the contract is silent on the right to assign; depending on where you are located, your contract may nevertheless be assignable (unless your contract specifically prohibits it); when we represent a client in a transaction, those are the things we look for and check as part of our complete service. 

Dennis Stern, Esq

Kirschenbaum & Kirschenbaum PC

https://www.kirschenbaumesq.com/page/alarm-acquisitions-sales

DStern@Kirschenbaumesq.com

Cell: 203 536 9957

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Webinars

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December 4, 2013   12 noon EST  Register here: https://attendee.gotowebinar.com/register/4919260455763006721

     Title:  10 Things Residential Security Alarm Companies should consider BEFORE entering the world of Commercial Engineered System Fire Alarms

      Presented by:  Bob Williams, President of Briscoe Protective Systems and his Management Team. 

Briscoe Protective Systems has been in the industry for 35 Years and has made the transition from a Residential Alarm Company in the late 70’s to a Engineered System Fire and Security Company that is an SDM Top 100 Company. Find us on the web at www.BriscoeProtective.com or on LinkedIn under Companies, Facebook and Twitter@BriscoeProSys 

      Description:  There is a big difference between installing Residential Fire Systems and Commercial Engineered Fire Systems and there are “Key Factors” that Security Company’s should consider before attempting to go into this lucrative but challenging market.

      Who should attend:  Alarm company owners and fire techs.  

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