Thinking of Selling Your Alarm Company?

Buying and Selling Subscriber Accounts — Advice From An Expert
By Ken Kirschenbaum, Esq,
July 25, 2011

Ken KirschenbaumOn July 5, 2011, I published an article on buying or selling subscriber accounts and asked the professionals who read this forum to add their comments and advice. The first (and only so far) starts with perhaps the most well known and respected, Ron Davis. Ron, thanks for participating and sharing your years of experience.
— Ken
I’d like to add my comments to the subject of buying subscriber accounts. Great forum! The amount of information you put out is indeed, both quantitatively and qualitatively  needed in the industry.
Since most of our work represents the sellers, here are some of the issues that we advise our clients to be aware of:
  1. Some suppliers, including wholesale monitoring central stations, put a phrase in their contracts with alarm companies that states that the supplier has a “right of first refusal “in the event of a sale of either accounts or the whole business of the alarm dealer. This is particularly odious when it is not known by the alarm dealer, who was never offered an explanation in the first place, and usually comes up right before a transaction is set to be concluded. While I’m sure there might be some valid reasons for having that phrase in a contract between the supplier and alarm dealer, I can’t think of one unless there was a valid consideration and the alarm dealer knew about it, up front.
  2. I’m a big believer in a transaction that is good for both sides. We work hard to get the best deal for our clients, while still espousing a fair deal for the buyer. It’s a tight rope. And what complicates it is the holdback that most buyers think is a fundamental part of the transaction. It is not. I have talked to many business brokers in other industries, and while there may be a “true up” there is no such thing as a seller guarantee for the performance of a customer base after the sale. Many buyers believe it affords them additional protection above and beyond what their own due diligence has provided. In many cases, it is nothing more than a reduction in the purchase price. For example, if an alarm dealer selling his company has a 10% attrition rate, historically, and there is a 10% holdback to “guarantee performance,” then the buyer has just reduced the purchase price by 10%. Through his own due diligence, the buyer knew that he was buying a company with 10% attrition. Either that should be factored into the purchase price or eliminated. A compromise that we have pioneered in the industry is a “basket” to protect the seller from being charged back for attrition that the buyer knew about ahead of time.
  3. What many alarm dealers are not familiar with, and Ken, more to your comments about the value of a lawyer, most alarm dealers are not familiar with the term “transaction attorney”, but that’s exactly what is needed to have good representation in understanding all of the vagaries of the ASSET purchase agreement . Further, the transaction attorney should be one who is versed in industry practices of companies that are in the alarm industry. While brokers are not lawyers, it is disheartening to be representing a seller who was also working with a lawyer who is unknowledgeable about practices in the industry.
  4. For most alarm dealers, the sale of their company is one of the most important decisions they will ever make. In many cases, it represents the triumph over adversity in building a business. They will be doing this only once, more than likely, for the first time. Any attorney or broker that does not take this into account in working with the client, should be booted. That simple. We have had several examples of alarm dealers who have died, and left their spouses who were not knowledgeable about the business in charge of their estate. It’s a particularly tough time for someone who’s just lost their spouse, and is complicated by a lack of day-to-day skills necessary to run a business. If that spouse decides to sell the business there is going to be, and should be, a good deal of handholding and support.
  5. Finally, a seller who has made the decision to sell should be counseled honestly and intelligently as to what the market is for the type of business and the RMR that the seller is selling. I remember a few years ago when the industry was abuzz about the price that HSM received for the business sold to Stanley. It was reputed to have sold for 60 X, and within days after the announcement, we must have received over a dozen phone calls from alarm dealers who were willing to sell their companies if we could get a 60 X multiple for them. Some of these companies only had several hundred accounts, but figured that the industry had changed overnight, and they could benefit from it. It’s the job of the broker, accountant, and lawyer to help their client understand what the market is. Having said that, it’s equally as important to maximize the value of the transaction for the client.

Ken, as always, your forum is a real benefit to the industry. Thanks for allowing me to participate, even briefly, in it.


Ron Davis,

President, Davis Mergers & Acquisitions Group, Inc., aka “The Graybeards”

Ron Davis is the managing partner of Davis Group. He can be contacted at