Selling Or Buying Alarm Companies – Doesn’t Have To Be Complex /

More On Choosing A Central Station - Things To Watch For

   February 9, 2013



            Whether you’re selling or buying alarm companies or alarm subscriber accounts, it shouldn’t be a stressful and complex transaction.  You’re not the first seller or buyer.  These transactions arise all the time.  In all fairness there are several levels that these deals typically fall.  Deals under $500,000.  Deals between $500,000 to $5 million.  Deals above $5 million.  One other category.  Those that involve bank or lender participation, and those that don’t. 

            You should be able to read and understand the contract between seller and buyer.  Not most of it, all of it.  If you can’t understand your own contract or require explanation from your attorney, then my advice is, get rid of your attorney.  Get one who writes in English using terminology easily understood by a person of normal intelligence.  There is no need for Latin terms or legal terms understood only by lawyers.  It’s your agreement and it should be expressed in terms you would use and you can understand.  There is also no need for 20 or more pages.  Maybe it’s just one of my quirks, but you also don’t need a definition page; use terms that are commonly used in the alarm industry, not terms that require definition.  For example.  We all know what “accounts receivables’ means.  But what does “qualified accounts receivable” mean, or “qualified subscriber contract”.  I don’t know about you, but I hate reading a document that requires me to look to 2 or 3 other paragraphs to figure out what’s in the paragraph I am reading.  These unnecessary complex contracts are not more thorough or comprehensive; they’re just poorly written.  Designed to multiply the pages to beef up the legal fees. 

            Here’s what you need to figure out to get your deal into contract.  The multiple that’s being paid; which contracts will be purchased and which excluded; the payout [cash less hold back or cash and payout with note held by the seller]; the guarantee period; if there will be replacement accounts.  Yes there are a few other issues, all of which are routine for any lawyer who claims to be an alarm lawyer. 

            Lawyers aren’t always the problem.  Sometimes clients are unreasonable.  But even then it’s the lawyer’s job to let the client know what’s reasonable.  A client insistenting on uncommon terms, or being unreasonable, can expect excessive legal fees and probably the loss of the deal. 

            Although the smaller deals deserve the same attention and will cover most of the same issues as those in the $5 million and below range, clients understandably do not want to spend much on legal fees for the smaller deals.  I generally streamline the process under those circumstances.  But the majority of deals will fall within the half million to 5 million dollar range.  If there is no bank or lender involvement, the deal should be relatively straight forward and your counsel fees falling somewhere between $2500 and $3000.  If a bank is involved the counsel fees can increase significantly because the lender may request many provisions that would not really be of concern to either a buyer or seller.   If you’re lucky enough to have a deal for more than $5 million there will likely be a few issues that need to be addressed, but again, even you aren’t the first deal like this to come along.

            If you need counsel who knows this industry and charges reasonable fees, give me a call.  If you prefer counsel who makes a big deal out of everything and charges excessively, I can accommodate that too !!
*****************
more on choosing a central station - things to watch for

******************

Comment

*****************

Ken,

Further to Ron Davis’ comments about  “Right of First Refusal” clauses in Contract Monitoring company Contracts.  Another clause that can severely impact the ideal Closing Date of a Transaction is the “Auto Renewal” clause.  Many Monitoring Contracts auto renew for a period of two (or more) years and have a 90 day Notice requirement for termination.  An alarm company with 1,000 accounts wanting to sell immediately but just missing the 90 day Notice requirement is looking at a $100,000 problem.  Again, if there was consideration for the two year auto renewal (normally there is not), that’s acceptable.  However, if the “consideration” has long since passed and the auto renewal is more than month-to-month, I would strongly urge you to renegotiate your contract with your Monitoring company.

As the Internet becomes more and more prevalent in the communication of alarm signals, another important consideration in the relationship between the alarm company and the Monitoring company is the management of IP addresses.  Unless the IP addresses are managed properly, the alarm company will end up with the same problem as using the Monitoring company’s phone lines for Monitoring (all systems will have to be reprogrammed in order to be moved to another Central Station).  If you plan to use IP for alarm signals, make sure your Monitoring company will provide you with your own IP addresses.  As in the case of telephone lines, primary and secondary addresses are necessary for redundancy.

Dorsie Mosher

Davis Mergers and Acquisition Group

www.graybeardsrus.com

**********************************************************************************************************************************
TO SUBMIT QUESTIONS OR COMMENTS REPLY TO THIS EMAIL OR EMAIL Ken@Kirschenbaumesq.com.  Most comments and questions get circulated.