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Comment on RMR Buy/Sell transactions

May 23, 2020
Comment on RMR Buy/Sell transactions 
Ken and Dennis
            Thanks for inviting and sharing thoughts May 19, 2020 about RMR Buy/Sell transactions.  It was a good discussion about and for the attorneys and brokers.  However, the typical alarm dealer who is originating and servicing customer RMR contracts could still be confused about the buy/sell price of “35-40 x RMR”.  
            Is it a multiple of the Gross RMR, or the Net RMR?  Example, out of a $4O RMR contract $15 can be raw cost = $25 RMR.  Multiple of 40 x $25 RMR produces a big, big difference in net worth, compared with 40 x $40.  Lots of deals quickly break apart when the buyer, not the broker, talks about Gross vs Net RMR.
Lee Jones
Support Services Group
    Lee, glad you could join us and thank for your nice comment.  As to the Gross versus Net, I never had a transaction based on Gross.  There have always been adjustments to the Gross RMR for delinquent accounts, teleco/wireless charges, ineligible customer contracts etc.; so when I talk multiples, it is what the Gross and the price may/will be adjusted for those "deducts"; whatever the deducts are, will to some extent be off-set by "other" assets included in the transaction like TM revenue; work in process, inventory etc.
Another response
            It would be a rare deal, indeed, if the multiple is applied to the gross RMR.  Gross RMR would be the charge to the subscriber, and that could include sales tax as well as various charges beyond basic central station monitoring charges, such as radio, cellular, third party vendor charges like or Resideo and guard response or runner service.  Even excluding sales tax, which is not an issue in some jurisdictions, a $40 gross RMR could easily end up being net $25 RMR.  It used to be common to deduct the central station basic monitoring charge from the RMR, but the custom and practice now is not to make that deduction.
            But be warned, whether it’s gross RMR or net RMR, the multiple is likely to consider that in the computation.  Thus if a buyer offering only 25 times may be making that offer based on gross, and an offer of 40 times may be based on net.
            Dennis raises other issues, which are other off-sets to the purchase price, such as accounts that will be excluded from the purchase price calculation.  That’s another article, one I have written about before.  Be wary of exclusions, charge-backs, non-qualified, rejected accounts; all these ultimately reduce the sale price, no matter what the multiple is.
            This lack of clarity in a buy-sell agreement is a disaster waiting to happen, and it will likely happen during or just after the guarantee period when the final accounting is to be done and final payment is to be made.  

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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