Question
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Ken
I've run across a situation to purchase a portfolio that includes a block of accounts with a property manager. The manager had excluded the term of the agreement due to the nature of buildings turning over.
He also excluded the assignability paragraph as he was burned once during a sale to an unresponsive dealer. Due to my company's reputation the manager is agreeable to me purchasing and servicing his accounts, but I'm concerned with the resale value.
On the plus side, lots of profitable service and project work is also generated.
My question; Does anyone have experience with valuations on a block of similar monitoring agreements?
BTW we use Kens contracts and they are readily accepted by portfolio buyers from my experience. Thanks also for this excellent forum.
Rick
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comment
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I have found that when property managers object to the standard term and/or auto-renewal, they will usually agree to:
1. Month-month auto-renewal and a right to cancel with 30 days notice if the owner changes manager/agent. I am also considering adding into our commercial agreement some language that the agreement is assignable to a subsequent manager/agent with a letter from assignee, which helps retain the account when they actually tell you when they lose their management contract (although they rarely do). One or both of these helps with this objection. Stand firm on the auto-renewal as it is required to ensure life-safety monitoring continues even if someone forgets to sign a new contract every year. Sell this as a protective term for the owner/manager.
2. Assignment with no notice if the dealer’s accounts are transferred to another company as part of an acquisition or merger. I have sometimes had to add “qualified company (operating or using a UL Listed Central Station)”.
I spend a ton of time negotiating custom agreements for this market segment. As a fire protection company, this is a big segment for us and worth the time spent to win not just the monitoring, but all the associated service business. P.S. 99% of the time I do not have to touch the key protective provisions, with the exception of indemnification which is more commonly negotiated or omitted with property managers and always omitted with government agencies.
Thank you,
Rob
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Response
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The Standard Form Contracts are designed to maximize value; the equity in your company. Obviously if you make changes you reduce the value, and sometimes you cause the subscriber contract to be unmarketable. If your subscriber locks you in with "no assignment" then you're going to have to get the sub's consent to a sale, which you might get, but your deal will be contingent on the consent.
It's a competitive market most of the time and if you won't agree to your subscriber's demands, someone else will. You have to balance that consideration against the added risk you take when you modify or worse, omit, a proper contract. Most alarm companies will modify their contract, and that's ok; you just need to know what you can modify and how to do it. You need to believe in your contract and be able to sell it, explaining the reasons for the terms, and you'll face less demands for changes.
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