What are you seeing in multiples paid for companies?
It is hard to generalize too much but from the transactions we’re seeing the valuations are drifting up a little bit. They increased a bit in 2011 relative to 2010. I, like many others, look to Mike Barnes who compiles that data. I would expect those numbers are going to be up this year because it appears there are some higher value transactions that have been occurring. There are certainly a lot of regional buyers and there continues to be strong private equity interest in the space. The transactions I have seen have been priced favorably for the seller. Most of the transactions we’ve been seeing for modest fold-in-sized acquisitions are in the mid-30s to mid-40s. I expect the overall average should be trending north.
Besides monitoring, what other types of RMR are growing in significance?
In the past couple of years we have seen an evolution of more advanced types of RMR. It used to be that monitoring was the only real RMR — digital burglar and digital fire monitoring. Now there is much more — interactive services including energy management, the ability to remotely operate and control your alarm panel, home automation, services to be able to look into the home and view video or video clips from cameras within or around the perimeter of the home. That has driven the average RMR from what was probably the high 20s to now some alarm companies are getting average RMR in the 40s. That is a dramatic change. It’s proven that these are services that consumers truly value. Everyone is more and more used to being connected, and getting more and more demanding of being able to look into their home and adjust temperatures and turns things on and off remotely. The alarm companies are responding to that growing demand.
On the commercial side it is equally as exciting. There continues to be increased levels of adoption in the video space for remote video monitoring, remote video storage, the whole video monitoring as a service. That has really taken what was often a ‘sell the hardware’ DVR camera system and maybe get a maintenance contract, to now a really robust recurring revenue stream to provide services to those customers. We are seeing the same thing occur on the access control side and also the interactive services for security systems are being adopted by commercial customers as well.
We are seeing RMR morph and expand with a lot of clients we are talking to. That is great because what you are seeing is the sandbox everyone plays in is getting larger. That provides tremendous opportunity for everyone to try carve out a larger piece. I find that exciting and compelling. We are very energized by that because there are a lot opportunities to finance some of these new services because most of them are very high margin. The alarm industry has innovated and a lot of it has been enabled by smartphone technology and increased adoption of that technology, such as the iPhone and all the apps to connect to your panel.
Do you see cable providers and telecoms being a real threat to the traditional security installer?
Absolutely. But I believe there is always going to be a place for the independent alarm companies and that they will always be able to compete. While the cable and telecom companies may come in and carve out a corner of the market, in my mind, they are likely going to be grabbing new customers that don’t have security systems. I believe customers that are established with their security providers are likely to stay with them. Alarm installations, both on the residential and commercial sides, are very high-touch, service-oriented businesses that are much more challenging to achieve on the national scale that many of these new entrants are seeking to do. It is a lot easier to control the level of service for the local and regional companies that make up the majority of our industry.
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