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Comments on attrition and multiples
October 26 2022

Comments on attrition and multiples from article on October 14, 2022
          What Mitch doesn't point out about his take on attrition is that if the company is moving in a forward direction it could be the opposite of what he said.  Company A with 15% attrition had $35,000 last year, $40,000 now and at current pace will have $47,000 next year even with the 15% attrition.   Company B had $38,000 last year, $40,000 now, and at current pace will have $42,000 next year even with their $10% attrition.  Company A could be considered to be worth more.
          If someone were to buy only my active accounts on contract and not another single thing was included in the sale, then I would agree to lower the multiple adjusted for attrition.  Selling the whole enchilada with techs and trucks and inventory and years worth of networking - No Way! not in a million years.
          Buyers like to play it on the safe side, and they don't always like to discuss with us all of the opportunity they know they will have for growth and exactly how much money they will be making.  They act like the only revenue they will receive after the sale is from those certain number of RMR payments, and we all know better.

          Really appreciate both of your comments on this and they are both good rules of thumb for buyers and sellers to consider!

Thank you!

Kelly Bond
          Not all the time, but sometimes, sellers sell because they are concerned that rather than growth their company will experience negative growth.  A seller with a history of growth who wants a premium purchase price if selling the company will have to convince the buyer that all factors that contributed to that growth will continue; that could include a strong sales force and technician crews that will be staying with the company after the sale, new construction that appears to be continuing unabated and other factors that can be identified.  If the buyer believes the growth opportunity is real then a higher multiple can be expected.
          I think every potential buyer of alarm accounts and or any business expects to do as well or better than the seller.  It’s not unique to the alarm business.  Every guy who buys a restaurant thinks he will do better for one reason or another.  So for the most part every buyer of alarm accounts or business expects growth opportunity, except for the buyer who buys stagnant monitoring accounts, offers no service or new installation, and intends to ride the account base to zero.  Don’t expect top multiple from that buyer.
          I am seeing a lot of alarm company owners looking to sell and a bunch looking to buy accounts.  I’ve listed some of these opportunities in The Alarm Exchange under the Merger and Acquisition category.  I’ve also started to broker a the deals for sellers and buyers.  It’s surprising how many alarm company owners don’t understand how best to operate their company and particularly how to best position the company for sale, something I believe you should be thinking about and doing from the moment you start in the alarm business, or any business.  Exit strategy is something every business owner needs to plan on, sooner rather than later. 

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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