Buy-Sell Agreements: Beware Those Who Purport ‘This Is Industry Standard’

Most provisions in buy-sell agreements are negotiable. While some terms are more common than others that doesn’t mean they fit every deal.

Sometimes I just can’t help myself. You learn something new every day, apparently. When you are negotiating to sell or buy your alarm business you should be particularly wary of hearing, “This is how it’s done” or “This is standard provision in an alarm deal.”

The first thing you have to consider is who exactly is making this statement? The alarm owner you’re negotiating with? His lawyer, accountant or broker? How do you know what is truly customary and is there really any term or provision that is customary or standard practice?

The truth is that most provisions in the buy-sell agreement are negotiable, and while there are some terms that we see more often than others that doesn’t mean they fit your particular deal. Having represented the alarm industry for almost 50 years I’ve been involved in many deals, negotiated, drafted and reviewed many buy-sell agreements for both sellers and buyers. From my experience, there are very few people who can claim to know what’s standard terms and provisions.

I’m currently involved in five pending alarm deals. In one I’ve been presented with a form agreement that I think needs serious modification. Many of the requests for revision have been met with, “This is industry standard.” Look, there are lawyers and brokers out there who, like me, have handled scores, maybe hundreds of deals over the span of their career. I know them and respect them and they know who they are and most of you do too.

Then there are the lawyers and sometimes brokers who know they don’t know the industry and usually defer to me for “how it’s done.” But sometimes I come across someone who purports to know and doesn’t, so when I get a response to a change in terms with “No, this is industry standard,” all I can think of is … B-S.

I know industry standard because I set industry standard; I don’t wait for someone else to tell me what industry standard is or copy it from some other lawyer’s form agreement that may have been good for that deal but not another, specifically your deal.

What does this have to do with you, the alarm client? Sellers and buyers need to be aware of what they should expect in a sale transaction. There are so many issues from the assets being sold, the warranties being made, the guarantees demanded, indemnity issues, tax and accounting issues, and o’ by the way, the multiple.

Too many of you sellers are enamored with a high multiple offer. How often I’ve heard, “The offer is 40-plus times and I have to take it.” The trouble is that once the contract provisions are presented the true multiple is under 25x because so many assets have been excluded from the deal or the post-closing issues will most certainly erode the asset base, reducing the purchase price.

Don’t get me wrong, all of these issues are fine, as long as you understand and agree to them and fully understand what the final outcome is likely to be.

Most of you reading this article walk to your own beat; you make the rules for your business. You’ve had advice on the way and you’re smart enough to get the advice you need when you need it. Don’t be too impressed with what you’re told about industry standards unless it’s coming from someone who has been around the block enough to know what industry standards apply to you and your deal.

This article first appeared on Kirschenbaum & Kirschenbaum’s website.

If you enjoyed this article and want to receive more valuable industry content like this, click here to sign up for our FREE digital newsletters!

About the Author

Ken Kirschenbaum

Security Sales & Integration’s “Legal Briefing” columnist Ken Kirschenbaum has been a recognized counsel to the alarm industry for 35 years and is principal of Kirschenbaum & Kirschenbaum, P.C. His team of attorneys, which includes daughter Jennifer, specialize in transactional, defense litigation, regulatory compliance and collection matters.

Security Is Our Business, Too

For professionals who recommend, buy and install all types of electronic security equipment, a free subscription to Commercial Integrator + 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 to your bottom line.

A FREE subscription to the top resource for security and integration industry will prove to be invaluable.

Subscribe Today!

Leave a Reply

Your email address will not be published. Required fields are marked *

Get Our Newsletters