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More comment on what’s your alarm company worth / Which contract is recommended
October 15, 2021
More comment on what’s your alarm company worth from article on October 4, 2021
          I have to disagree with most of Bart Didden’s comments in his post below:
1.      Firstly a Seller is not ever likely to know what a buyer’s EBITDA is. So forget that.  In fact many buyers themselves don’t what their EBITDA is. EBITDA is an artificial construct that most of the time only a small section of the finance dep’t of the buyer knows. Nor will it likely to be disclosed. I do agree that a Seller should take stock as best he can on how well run and financed a buyer is.
2.      Secondly there is no reason why the “bought” accounts should not perform better than what the Buyer had in the first place – at least for a period of time.  If they are high margin, low attrition accounts it will take some time for any bad practices of the buyer to dramatically affect the bought accounts.
3.      Thirdly buyers in my experience do not and should not decide on whether to proceed on an acquisition  because of their EBITDA.  Sure they have to ask themselves whether they can afford the deal but they should be asking whether spending capital, whether equity or debt, on this prospective new block of accounts will be accretive to their business and their earnings.
4.      Fourthly, buyers looking at adding a another block of accounts to what they have in an existing market will and should naturally tend to pay more for the new block particularly if the deal is being sold in a competitive scenario and not to just one buyer. The reason why is the synergies the buyer can get. Synergies drive most strategic acquisitions to higher prices. Yes  there are likely to be extra costs to taking on a new set of accounts but overall the cost to service the new larger block of accounts per account is likely to go down. That is why fold in acquisitions work.
5.      Finally Bart says that business brokers will not be useful or the best source of guidance on these matters of whether to buy or not but the buyer should consult his accountant. Yikes! What to say on this. An exceptional accountant might be helpful but the ones I have met and worked with are not likely to provide the best source guidance on an acquisition opportunity. A good broker can tell the buyer what the market is for that set of accounts and what he or she should be paying.
Victor Harding
Harding Security Services Inc.
Toronto, ON   M4T 1A3
Tel: 416.925.7474
          Thanks.  I agree more with your perspective than Bart’s, but I appreciate both of you participating in this important issue.  Traditional alarm companies sell based on Recurring Revenue under contract.  Generally an EBITDA assessment will yield the same valuation.  How can that be?  Because even EBITDA depends on a multiple.  That multiple is based on years, not months.  So you will see a n EBITDA multiple of 3 to 6 times.  By adjusting the multiples of both the RMR and the EBITDA evaluations you can get close numbers.  Will that work all the time?  Probably not.  Not all alarm businesses are the same and those that do business outside the norm will require more creative valuation.
Which contract is recommended
          We have your All-in-One contract from a couple years ago. We generally do not do fire alarm monitoring but on a recent job where we have a security system they wanted us to monitor the new fire alarm as well so they could get bills from one vendor. We have the other vendor’s fire alarm tied to our central station but all service / etc will still be done by them. What should we have them sign ?
          The Fire All in One; it includes the monitoring services.  If yours isn’t updated within the year you really need to get the updated form.

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Ken Kirschenbaum,Esq
Kirschenbaum & Kirschenbaum PC
Attorneys at Law
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