Looking To Sell Your Alarm Company, But Have No Written Contracts? Here Are Some Tips.

There is a fruitful market for the purchase and sale of security alarm monitoring accounts documented on solid industry form written contracts (“Contracted Monitoring Accounts”), as Contracted Monitoring Accounts typically provide for recurring monthly revenue. Based on my experience, the current multiple in the marketplace being paid by buyers for Contracted Monitoring Accounts is in a range of 30 to 34 the recurring monthly revenue (“RMR”). For example, if you have $10,000.00 per month in RMR from your Contracted Monitoring Accounts, you can likely sell them to a buyer in a range of $300,000.00 to $340,000.00. However, what if security alarm monitoring accounts are not documented on industry form written contracts, but are just verbal agreements between you and the subscriber (“Verbal Monitoring Accounts”)? Are there buyers for Verbal Monitoring Accounts? Are they worth less than Contracted Monitoring Accounts? What can you do to maximize the value of your company?

While there are some buyers for Verbal Monitoring Accounts, the multiple paid for the RMR is typically 30 to 40% less than the multiple paid for a Contracted Monitoring Account due to the increased risks assumed by a buyer of Verbal Monitoring Accounts. Based on my experience, the current multiple in the marketplace being paid by buyers for Verbal Monitoring Accounts is in a range of 18 to 22 (“RMR”). Hence, your business is probably worth 30% to 40% less if your monitoring accounts are not on solid industry form contracts.

So, if you are looking to sell your security alarm monitoring accounts someday and have Verbal Monitoring Accounts, here are some tips:

  • Prior to putting your company up for sale, have your subscribers sign solid industry form written contracts for central station monitoring (preferably for a term of 1 to 3 years with an automatic renewal provision, if permissible under your state law). Often times your subscribers will be willing to sign a written contract in exchange for a few months of free monitoring, or some equipment upgrade (perhaps converting a 2g radio to 3g).
  • If you still have some Verbal Monitoring Accounts at the time you are scheduled to close on the sale of your company, negotiate with the buyer for a 6 month post-closing conversion period for you to continue your efforts to convert the Verbal Monitoring Accounts to Contracted Monitoring Accounts by having your subscribers sign solid industry form contracts (the “Conversion Period”). Then, at the end of the Conversion Period, insist that the buyer pay you the full value (30 to 34 multiple of the RMR) for each converted account during the Conversion Period.

With a willing and creative buyer, you can usually find a way to receive some value for your Verbal Monitoring Accounts. However, you are going to leave a LOT OF MONEY on the table when you go to sell your company if you do not have Contracted Monitoring Accounts.

Michael J. Revness, Esq., is a founding partner and chairs the security alarm department at Kurtz & Revness, P.C. For questions, comments, or requests for legal service, please call Mr. Revness at (610) 688-2855, or drop an e-mail to michael.revness@kandrlaw.com. This article is for information purposes only and does not constitute, and should not be relied upon as, legal advice.