Conventional Wisdom and DIY Systems

A CHALLENGE TO THE CONVENTIONAL WISDOM ON THE IMPACT OF DIY SYSTEMS ON THE “HOT” RESIDENTIAL ACCOUNT ACQUISITION MARKET?

DIY Systems continue to invade the traditional residential security alarm model through inexpensive, sleek in design, and easy to use and install security alarm products. Moreover, some companies selling DIY Systems are offering professional monitoring at a fraction of the price offered by the traditional security alarm model. Many in our Industry are concerned (and rightly so) this onslaught of competition will cause a “race to the bottom” for the costs of security alarm systems, central station monitoring, and related profits in the residential marketplace. Moreover, conventional wisdom tells us that this “race to the bottom” concern will – in the very near future – drive down the multiples buyers are willing to pay sellers for residential security alarm accounts (for the past several years, multiples paid by buyers for high quality, properly contracted, security alarm accounts has been in the 30’s, and sometimes low 40’s, of Recurring Monthly Revenue, or “RMR”).

HOWEVER, PERHAPS WE SHOULD SWIM UPSTREAM. GO THE OTHER WAY. CHALLENGE CONVENTIONAL WISDOM AND CONSIDER THIS ALTERNATIVE ARGUMENT: Year after year, traditional security alarm companies must replace thousands upon thousands of dollars of embedded attrition just to stay even! With the onslaught of DIY Systems, the need for, and amount of, attrition replacement is only going to increase. Replacement of this attrition by sales persons hitting the pavement in search of new accounts will continue to become more and more challenging and costly, as DIY Systems increase competition and drive down system and monitoring costs. Hence, a colorful argument can be made that future acquisition demand for high quality and properly contracted residential RMR may actually increase — and not decrease — as more and more security alarm companies look to replace attrition through acquisitions and, in doing so, battle to buy the remaining high-quality residential RMR acquisition targets. If this plays out, the law of supply and demand (i.e., the demand by buyers for high quality residential RMR exceeds the supply of sellers of high quality residential RMR) teaches us that the multiples buyers may be willing to pay for high quality residential RMR may very well increase, not decrease, as this all plays out in the near future.
MICHAEL J. REVNESS, ESQ., is the founder of AlarmLegal.com,  and a founding partner at the law firm of KURTZ & REVNESS, P.C.  Please contact me at mrevness@kandrlaw.com (or 610-688-2855) if I can be of assistance with security alarm contracts, the purchase or sale of security alarm accounts, or other related security industry legal services.

This article is for information purposes only and does not constitute, and should not be relied upon as, legal advice.