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Follow up on altered contract affecting multiple / Your liability for subscriber access to change data
March 10, 2022
Follow up on altered contract affecting multiple
          Recently you answered a question asking about an altered contract.  In your response you mentioned that an altered contract can reduce the multiple and that you’re seeing an average of 36 times the monthly multiple, especially when K&K contracts are being sold.  
          My question is, what's included in that monthly multiple?  When you have monitoring and cellular service and or a 3rd party service like are you saying you're getting 36 times of all of that or 36 x the monitoring only?
          Please leave  my name out of any public response. 
          I said, and say again, the starting point for negotiations when you have Standard Form Agreements for sale, and all other aspects of your operation are best practices for alarm companies, is 36 times.  Your question, and it’s a good one, is times what? 
          If I say its net not gross billing, that still leaves a lot of ambiguity because we need to know how we get to net RMR.  Net will be defined in the Asset Purchase Agreement or the Stock Purchase Agreement and how you get to net is a matter of negotiation.  So, what may be customary, common in alarm deals, may not be your deal for one reason or another.  Hopefully that reason won’t be because you are simply misinformed, or uninformed, and for some reason best known to you, decided to handle your sale, or purchase, without experienced legal counsel as well as other professionals who are expert in the alarm industry.  That’s on you.
          We start with gross billing, which is the invoice you send to your subscriber.  The multiple should not be applied to gross billing.  The first obvious deduction from gross RMR is sales tax.  Everything after that is up for grabs.  Typically we see third party vendor charges, like, Napco Starlink and other charges that are included in the monitoring charge.  Most deals today do not deduct the basic central station charge, but that too is a matter of negotiation.  A buyer offering 42 times may want to deduct basic monitoring charges while another buyer offering 36 times won’t net that charge out. 
          Keep in mind that we know what the expense is to provide monitoring service.  That’s not as clear when we consider repair service charges or inspection charges, which is why repair and inspection RMR will generally fetch a lower multiple than monitoring and some buyers only want the monitoring RMR. 
Your liability for subscriber access to change data
          I read your columns all the time. With today’s technology and customers able to remotely access their own programming are alarm companies looking at increased liability
          All aspects of alarm company activity expose the alarm company to liability.  That’s why you cannot do any service at all without a proper contract in place.  Input of data and use of the data is certainly another area where mistakes can be made. 
          The subscriber contract must address subscriber access to data, especially when the subscriber is able to modify that data.  Older contracts won’t have the necessary provisions to deal with this because the technology wasn’t available and subscribers weren’t doing their own data entry. 
          Very often the platform that permits the subscribers to access the portal will have Terms and Conditions that have protective provisions, though those provisions are probably designed to protect the third party vendor or central station, not the dealer.
          You need to address the subscriber’s access and input in your contract with the subscriber.  Get updated Standard Form Agreements, especially the Commercial All in One and the Residential All in One because those services are more likely to permit subscriber access to a portal.
          The good news is that protective provisions in the Standard Form Agreements will cover this additional risk.

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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