AES adds value / ISC schedule March 29, 2018

KEN KIRSCHENBAUM, ESQ
ALARM - SECURITY INDUSTRY LEGAL EMAIL NEWSLETTER / THE ALARM EXCHANGE
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AES adds value / ISC schedule
March 29, 2018
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ISC schedule, so far:  please stop by to say hello
April 11:   Affiliated Monitoring booth    1 -2 PM 
                 Rapid Response Monitoring booth  2 -4 PM
                 
April 12:  Stages luncheon 11 AM.  For central stations only
                COPS Monitoring booth:  1 - 2 PM
                All American Monitoring booth:  2 - 3 PM
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AES adds value
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Ken,
    Responding to Josh Lloyd’s March 21 2018 question about whether owning a communication network, such as AES increases the value of the company.  We perform 15 – 20 valuations of security companies and integrators each year.  Even though our valuations may be expressed in a multiple of RMR, the true value is the present value of the future cash flow from the company or group of accounts, in the hands of the Buyer.  
    We have valued, and sold, several companies with AES networks.  AES customers are willing to pay expense over and above the price of a typical cellular communicator because one of the benefits of AES is decreased ongoing cost.  Decreased cost typically translates into higher cash flow, and should result in a higher valuation.  Since a buyer is buying the account with the AES radio in place the there is not additional hard cost or ongoing cost for that account.  We look at the effect the AES network has on the total cash flow of the company.  Since there is no monthly cost for the AEC unit there is more net cash flow than there would be from an account with a cellular unit.  Since we subtract total monitoring cost from total RMR when computing our valuations this increases the valuation.  Another factor that is affected by AES units in a company with large network of AES radios is that the WATS line expense may be significantly lower since sites using AES don’t use the phone lines for event reporting, timer tests, etc… 
    So yes there is a difference in value for a company with an AES network.  When we value a company for a divorce, partner dispute, buy-sell agreement, it is much more complicated than the “what can we sell if for” valuation of a group of accounts.  We consider numerous factors that affect the ongoing value of the company.      When a company is selling, the value is going to be what a willing buyer will pay for it. 
Mitch Reitman
Reitman Consulting Group
Fort Worth, TX
817-698-9999
http://www.reitman.us
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Response
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    I hear a lot of good things about AES and I don't think I've heard anything negative.  As far as a cost factor though, what about the repeater stations that have to be positioned on subscriber or someone elses property in order to maintain the network?  That could come with some expense that I don't see anyone discussing.  
    The trend for a number of years has been not to deduct central station charges from the RMR to arive at the purchase price.  Third party vendor charges, such as alarm.com, napco and alarmnet is another matter; those charges typically do get deducted along with guard service charges.  There is going to be some expense setting up the AES network, but I suppose in the long run it may increase overall equity in the business.
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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