February 27, 2012
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Buyers of subscriber alarm contracts fancy themselves a little smarter than those on the selling end, so they don't as often seek advice about the process or what they should be looking for. They know what they are looking for and just as often they are so anxious to buy accounts they pass on the deal only when the seller is beyond just plain unreasonable.
Why the buying frenzy? Buyers come in several varieties, and my categories are certainly not descriptive of everyone, are not mutually exclusive, and I should add, not particularly scientific or supported by data. But let's see where this goes.
Buyers can first be placed in one of two categories, those who are always on the prowl to buy [predator or scavenger] and those who are presented with an opportunity that comes their way.
The "professional" buyers have in house teams looking for deals, engage capable and knowledgeable brokers to find deals and even advertise and promote in the form of dealer programs or simply as buyers of accounts. Some of these buyers have commitments from banks to borrow money, and in fact are paying a standby fee for money not yet borrowed, so they are under some encouragement to keep buying. This buyer is also firmly entrenched in the business model of growth by acquisition, either to grow the company for long term or to package RMR for sale to others [some of whom are better described as lenders than alarm companies].
The second category is those who might be working for someone who is interested in retiring and wants to give a loyal employee the ability to continue the business, a buddy who would like to sell and believes it's easier to just offer the accounts to his friend who runs a local competing business, or someone who really isn't in the market to buy but an opportunity presents itself that makes good business sense.
The professional buyer is geared up for due diligence, which means checking out the seller to determine the risk of the purchase and the purchase price the deal justifies. This buyer is going to look at number of issues which will include:
location of accounts
type of accounts - residential, commercial, institutional, government
types of services - sales. monitoring, service, inspection,
types of systems - intrusion, fire, CCTV, access control
Contracts - are they in proper legal form and have all subscribers signed;
average age of contracts; did seller comply with all laws regarding initial execution of contracts and renewal notices
Does seller have any debts, claims or lawsuits threatened or pending
Is seller under any impediment to sell business assets or the subscriber accounts
Seller's customary attrition rate
Where are seller's accounts monitored
Does seller have its own lines
Does seller utilize equipment that requires special training, authorization or certification from a manufacturer
What are seller's receivables and average subscriber payment history
How many employees and what category of employees does seller have
How much is seller asking, how flexible is seller and how does seller want to be paid
Is seller looking to stay in the alarm business or retire
Are their key or other employees that are available to continue working
Have key employees started competing and are they under or will they sign non compete agreement
Verification of finances which may include checking bank statements, audits, tax returns, financial reports to lenders, internal ledgers and records
Interview employees
Check insurance coverage, claims history and claims reports
The opportunity buyer should, but most likely won't, check all of the above. But even this buyer should consider:
If the seller's subscribers will be a good fit for the buyer; are the accounts in similar territory and otherwise similar to the buyer's current accounts
Are their proper legal contracts and if not will seller get them signed on new properly drafted contracts
Are all systems operating; are there outstanding service calls or unfinished installations and who is going to be responsible for completion; what's owed for that work and who's going to get paid for it
Will seller take back a note, permitting the buyer to pay off the purchase price over time
Does buyer have all necessary licenses to operate the continued business and if not will seller stay on as the license holder
Will seller stay on to help transition the accounts if necessary
What percentage of accounts are family related to or personal friends of seller and not use to paying for services
Whether buying or selling you should be represented from the start by competent lawyers specializing in the alarm industry. The Security Industry Acquisition Group at Kirschenbaum & Kirschenbaum [ www.KirschenbaumEsq.com ] has the most skilled attorneys ready to assist. Contact Jennifer Kirschenbaum,Esq., at 516 747 6700 ext 302 or Jennifer@KrschenbaumEsq.com. You can also get a quick or detailed analysis of what your alarm company is worth by going to whatsmyalarmcompanyworth.com.