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Selling? How much can you expect to get for your alarm contracts? / Buying? How much can you expect to pay for alarm contracts? June 15, 2018

KEN KIRSCHENBAUM, ESQ 
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE 
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Selling? How much can you expect to get for your alarm contracts? / Buying? How much can you expect to pay for alarm contracts?
June 15, 2018 
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Selling?  How much can you expect to get for your alarm contracts?
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               More, or less, than you think.  As a seller you have a different perspective than a buyer of alarm accounts. See below for that perspective.
               Lee Jones brought an discussion on IPVM to my intention where I was misquoted opining that there is a ceiling of 35 times for alarm accounts.  I do use that number in articles, but a clearer expression of the current market multiple can be found in my article on May 18, 2018, where I opined:
               "It's really a rather simple exercise in arithmetic:  your RMR under contract times the multiple being paid.   Fortunately for the alarm industry, the multiple has been fairly constant for a long time.  Depending on how you have run your business, particularly which contracts you use and how you get them signed, you can expect 35 times, give or take 5 times.  That leaves a 10 point spread, and if you're on the lower end, you deserve it.  If you're on the higher end, you deserve it too. Being smart should have its advantages, and in this business it’s measurable, 10 times."
               Even the 30 to 40 multiple is only a range.  I don't suggest that 40 is a ceiling, because I've handled deals with multiples higher than 40 times.  If you want to see how to get closer to the higher range, go read my article from May 18, 2018 here http://www.kirschenbaumesq.com/article/is-it-time-to-sell-your-alarm-company-and-where-will-the-money-go-may-18-2018
               Keep in mind that you can read all my articles at http://www.kirschenbaumesq.com/page/alarm-articleshttp://www.kirschenbaumesq.com/page/alarm-articles
               You spent many years operating your business and if you're selling you want the highest price you can get.  To a considerable extent you can influence that multiple.  If you don't run your business focusing on the issues that matter, that maximize the value of your business, don't expect the highest multiple. 
               Some deals go for 60 times plus; others for under 25 times.  It's not luck of the draw, it's being attentive to the issues that matters, that maximizes the value of your company.  It starts with your contracts.  Get that right and then attend to your insurance and your central station.  All you need to do then is build your accounts.  Sell when ready.  
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Buying?  How much can you expect to pay for alarm contracts?
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               Buyers of alarm accounts naturally want to pay as little as they have to.  The acquisition of the accounts is both an investment and gamble.  Based on the make-up of the accounts you should be able to anticipate what that base will look like 12, 36 and 60 months after the closing.  And that's just how many will still be around, or how the original base may have generated additional accounts through growth and recommendations.  
               As a buyer you have a cost, the purchase price, and you have to service the accounts after closing; there are expenses attributable to carrying the accounts. If you've paid 40 times for the account you know it's going to take at least that long to break even on that account. Unless the account base has grown, instead of shrunk, you will have to add to the cost equation.  Instead of 48 months to break even it may take 52 months. [these numbers are not necessarily accurate].  
               If the seller has Standard Form Kirschenbaum TM contracts the buyer should expect to pay at least 35 times.  That multiple can be significantly higher, 5 or more times, depending on the account base, the subscriber make-up, pricing for services, location of accounts and lots of other factors.  Another significant price booster can be "enterprise value". That's an add-on above the market price for the accounts; on top of the multiple.  Enterprise value comes into play when the seller has created that value or when the buyer can use the acquired accounts to create that value.  In other words, 2 plus 2 are going to equal 6, not 4. That's Enterprise value [at least for those of us who don't have MBAs in business from Wharton].
 
 
 
THE ALARM EXCHANGE

alarm classifieds alarm security contractsThis area is reserved for alarm classifieds, alarm company announcements, solicitations, offers, etc. Those wishing to sell or buy; borrow or lend; dealer program or dealer; central stations; insurance brokers; business  brokers, insurance companies. Equipment to sell; looking for employees; subcontractors; mergers;

There is no charge to post a listing here. Include your contact information, phone, email and web site.  If you would like to submit a posting, please send an email to ken@kirschenbaumesq.com.  To create a reciprocal link to our website, click here.
 
 
 
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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