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Has Covid killed alarm deals and valuation
August 28, 2020
Has Covid killed alarm deals and valuation
            As we approach 6 months of Covid I was wondering what you’re seeing as its effect on the alarm industry.  Are company’s still being bought and sold or have transactions all been put on hold?   If transactions are still taking place has there been any change in alarm company valuation?  What about contract terms?  
            I would think hold back provision and attrition guarantees would increase in importance as people would be reluctant to make an acquisition and full payment with the increased potential of higher attrition as many business are going out of business and people losing their jobs increasing the percentage of default on alarm contracts. 
Just curious what you’re seeing. 
            I can comment based only on my experience; I haven’t really read all the opinions that have been published in the trade magazines.  
            I think deals are coming up with about the same regularity as pre-Covid period.  We have a number of transactions pending and this is fairly consistent with pre-Coved times.  The valuations seem to be consistent with pre-Covid too; that’s good news.
            Generally I think you can expect around 35 times for security and 40 times for fire, but you will face greater scrutiny and likely a tighter guarantee.  I think Covid is trying the patience of many and that translates to general intolerance for less than perfect expectation.  
            What does that mean to alarm dealers?  It means that even though a potential buyer is willing to start at 35 times, watch out when the subscriber contracts are not perfectly drafted and perfectly executed and very current, not just reasonably current.  Expect little tolerance for accounts that can’t be transferred to the buyer’s central station easily; for sellers with many claims, signifying sloppy work ethics.  These have always been considerations, but they may be exaggerated now.  
            Buyers, if properly represented, will be careful about the guarantee.  The effects if Covid are yet to be seen, in my opinion.  Loss of accounts, more difficulty getting paid, uneven and disruptive cash flow, increased claims and increased operating expenses are concerns all alarm companies should have, and buyers will have double concerns, theirs and the sellers.  
            I think we’re in for a rough ride; that the effects of Covid on business is just now being felt for most of us.  Up to now we have had expectations of going back to normal.  It’s approaching the time when expectation is hitting the wall of reality.  
            One thing is for sure; the businesses that survive and the residences still occupied are going to require security and fire alarms and services.  One other thing, all the alarm companies providing their services are going to require the services of great alarm industry attorneys.  So overall, I’m optimistic.  

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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