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Question - valuing the RMR accounts
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Ken,
I really enjoyed both webinars on the company valuations. I had a few questions that has come up from an acquisition we are looking at and the timing of the webinar was excellent.
The questions are as follows.
1) I am sure how to valuate a client base that is 75% renewing contracts from the original contracts signed across the last decade. Although, the account base is established and stable, I worry about valuating each contract more than 12x to 18x RMR. What are your thoughts?
2) I understand that many issues can increase the account value but I know that phone lines, upload/download capabilities, auto payment on accounts all effect the RMR value of a contract but what is a fair "ball park"discount for each missing piece. There was some mention in the webinar that each missing or added piece can increase or decrease the contracts by as much as 5x RMR per issue.
3) That would indicate that a 36 month contract, that has expired, and is on a year by year auto renewal, not reporting on a dealer owned phone line, not upload/download capable, and is being invoiced by mail and payable by check would be worth 18x RMR - 15x RMR (for the issues) = 3x RMR.
If that is the case, that is all that needs to be said, for any Dealers to keep your clients current.
Keith
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Answer
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There are lots of factors that go into coming up with a fair valuation, though ultimately the price is going to be what the seller demands and the buyer is willing to pay. During the webinar I mentioned that starting at 35 times is a safe estimate, and then move up or down depending on all of the factors. While some factors are more easily articulated there are others that are subjective and less well defined, at least on a quantitative approach.
In response to your inquiry, the value of a contract in renewal is likely to be valued the same as one that is within original term. What is more important is what the entire block of accounts look like and what the contract, in original term or renewal, looks like. Also, the percentage of accounts that are beyond original term may be a factor.
Regarding the downward adjustment of 5 x, I believe I said that failing to have your accounts on your own movable line into the central station would warrant the 5 x adjustment. That number would come close to the cost of reprogramming the panels. Although you can certainly have accounts going for 18 times, you're not going to start at 35 and end up at 18. The seller isn't going to accept that reduction. It's far more likely that accounts that are in such bad shape will have a starting point closer to 20 and end up at 18. How? You have a seller that doesn't have:
- proper contracts or no contracts
- its own line to central for telephone or VoIP - yes you can now get your own 800 # and IP address
- remote programmable panels
- most contracts in original term
For reliable valuation go to WhatsMyAlarmCompanyWorth.com
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Question - determining authorized personnel
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Ken,
We have some commercial accounts that go through some regular personnel changes. We no longer have a contact we normally deal with at said company and the new administrator there would like the "keys" to the system (ie. master code and online credentials to remote services). What is the formal process to get authorization to work with this person? A fax on company letterhead or ? I want to make sure we don't get into any legal situation.
Thank You,
Ryan
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Answer
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Any written communication from the subscriber would suffice - but make sure its not signed by the person trying to authorize himself, unless its the new owner. In a big company you should get authorization from a company officer. Retain the writing in the subscriber's file and don't be hesitant to call the subscriber to confirm the authorization. Incidental, the All in One contracts come with a Call List Directive, so change in authorization should be by amended Call List
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