Experts Share Tips on Buying and Selling Security Companies
ESX conference session shares insights to increase your appeal to potential acquirers and what to look for when acquiring.
Like sands through an hourglass, these are the days of our lives.
Although I am certainly not a soap opera buff and don’t think I have ever seen a full episode of “Days of Our Lives,” the famous and contemplative quote from that show’s opening is as applicable to security businesses as it is to human existence.
Like people, companies don’t last forever — both have finite lifespans calling for contingency and exit strategies.
And just like many of us shy away from dealing with the inevitable demise of ourselves or loved ones, security business owners tend to be averse to such long-term planning.
Hard to face, critical to do. I was reminded of that during a session at the recent ESX show in Nashville, Tenn. — a terrific event 10 years in that continues to grow stronger.
It was at that presentation a fresh light was cast upon the axiom: Always operate your security company as if you are intending to sell it, even if there is no impending intention to do so.
The reason being the level of diligence and attention to detail required during a sale involves best practices that are advantageous regardless of circumstances,and make selling that much easier whenever it does arise.
“Look at your company as if you are a prospective acquirer,” said SSI Industry Hall of Famer John Jennings, CEO of CQR Technologies and former owner of Safeguard Security. “Then it’s real simple when you are ready to sell. Consider bringing in a due diligence consultant periodically to ensure the business is being run tightly, and review on a regular basis whether you want to sell or grow.”
Jennings was among three panelists participating in the highly interactive “Should You Sell Your Company” session, which was moderated by Kelly Bond of Alarm Capital Alliance.
The two other speakers were John Loud of LOUD Security Systems and Wayne Alarm Systems’ Ralph Sevinor, another SSI Industry Hall of Famer.
Knowing them all quite well and having worked together in the past, I knew it was going to be a tremendously valuable session.
Despite being one of the last seminars at ESX, these experts deservedly drew 80% capacity. As it turned out, the discussion covered factors to keep in mind when acquiring companies as much as it did divesting of them.
As Jennings intimated, a firm grasp of both sides of the equation is essential for all parties to strike equitable deals.
He added that there is a difference between strategic and fold-in acquisitions. The former is intended to expand territory, eliminate a competitor, or add people or competencies, while the latter is aimed purely at growth.
A strategic scenario plays more into the seller’s hands and brings a higher salesprice multiple (periodic revenues multiplied by a given term, e.g. 35x recurring monthly revenue, or RMR).
Other tips the panel offered from the buyer perspective included:
■ Larger deals valued at $20,000 RMR or more are usually best (companies keep better books); “You get what you pay for as low multiples require a lot of work,” said Loud.
■ Familiarize yourself with other security companies; “Get involved in local trade associations and know other dealers so when those opportunities arise you have an idea what their business is like,” said Jennings.
■ Make sure all contracts are signed on both the security firm and customer sides; “Often, they are not,” cautioned Sevinor.
■ Check the state of all the accounts, e.g. terms, late paying or defaults, current or old equipment.
■ Take a hard look at attrition; “Consider how long it would take to replace those accounts. If it’s six months that means the business only has six months to grow in a given year,” said Jennings.
One of the parting shots of the session was a bit foreboding for residentially focused companies.
The consensus was that those businesses either need to have extremely close relationships with their customers or seriously look at selling due the oncoming rush of TV, telecom, DIY and other competitors.
“To have a chance, you have to offer all the latest bells and whistles. More importantly,you must make sure those in your territory are aware of it. Losing a customer because they didn’t know is the greatest tragedy of all,” Jennings said.
Security Is Our Business, Too
For professionals who recommend, buy and install all types of electronic security equipment, a free subscription to Security Sales & Integration is like having a consultant on call. You’ll find an ideal balance of technology and business coverage, with installation tips and techniques for products and updates on how to add sales to your bottom line.
A free subscription to the #1 resource for the residential and commercial security industry will prove to be invaluable. Subscribe today!