To Mr. Anon and others who may have misinterpreted my commentary ........A point of clarification.
Establishing a purchase price for a company can mean different things to different people. I have turned down more companies than I purchased for a number of reasons and, surprisingly, price was not the final factor.
If the buyers intent is to simply buy accounts, sit back and invoice a new customer base without any additional work, then that's the worth of the company purchased.
    A company wishing to solidify their operation and expand their presence in an area would consider the following and I may add pay for ....... Geographical area of service that crosses with theirs, removal of a competitor from the area, equipment technology that must be supported, customer / employee retention and last but not least a good contract.
There is value in all of the above that is many times overlooked by the seller. Regardless of a company's size structuring a company for sale is not a last minute affair but, must be part of the business plan from day one.
Those who fail to plan, plan to fail.
John W. Yusza, Jr
    With reference to valuation, it is not 100% the amount of RMR.  The price may get converted to a multiple of RMR but most of the sophisticated buyers of alarm companies are going to look at many factors including a multiple of free cash flow.  The amount of RMR is very important as it is a big indicator of the amount of constant revenue that is contracted but if the company has a very profitable service and installation business they will command a higher selling price for their business that will then be converted to a multiple of RMR, a higher multiple than a company that does not have as profitable a service and installation business.  
    At the end of the day the buyer has to pay for the acquisition and the way they pay for it is with free cash flow.  
    Is a sale presented in the form of a multiple of RMR, yes, is that multiple simply a number based on the size of the pool, No.
    Every deal is different.
    I can add some of what Mr Yusza used in his thinking to set up his policy.
    We know that 20% of our accounts take 80% of our time and effort to keep them happy.
A policy such as Johns where he has LONG TERM customers that PAY FOR THE SERVICE THEY RECEIVE  With no complaint by the company or the end user the customer is likely to stay with the company that buys the account. if they give the same or better service.  (the only thing we cannot factor in is the death of elderly clients and business dissolutions.) During due diligence I would value a 10 year client with a perfect pay record better than one that is under contract for 4 more years with a spotty record..
    His model is unique and LARGE business would do well to emulate. (Your cell carrier goes to month to month after 2 years.....)
    I do agree that Johns month to month contract should have a minimum period of 1 -3 years. In this time the customer has given the company time to perform and the customer has indicated his willingness to fulfill his obligations. (PAY....) If either side has execrations that were not met a divorce is as simple as a letter of intent to discontinue....
    From the rubble in my office
Joel Kent
    All astute observations.  The reason the multiple ranges from 12 to over 40 times RMR is many if not all of the factors mentioned above.  Every deal is and should be different.  Yes there are common elements and issues in the typical alarm buy sell transaction, but there are plenty of unique issues and concerns that the seller or buyer or both have.  These issues need to be addressed in the Agreement, and it's one reason the Agreement should be drafted for each deal.  Sure we start with a prepared form but its like saying the shoe maker starts with some leather and rubber.  If he sent you the leather and rubber could you make a shoe?  No, but too many of you think you can draft an Agreement or wear someone else's shoes.  
    For a quick valuation so you know what your company is worth or what the company you are thinking of buying is worth go to WhatsMyAlarmCompanyWorth.com.  Use the Standard Form Contracts and be assured of the highest multiples.
    After you figure out the price [and before you agree on how its going to be paid or other particulars of the deal] call me or Jennifer Kirschenbaum,Esq at 516 747-6700 x 302 and have our Alarm Acquistion Team assist you with your transaction.  


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If you would like to schedule a free live video/webinar presentation for your association meeting or event contact Eileen Wagda at 516 747 6700 x 312.