What Are Your Accounts Worth?
I am frequently asked by my alarm dealer customers what I think their alarm accounts are worth, i.e., what multiple can they can expect from a buyer. The answer is complex as there is no ‘universal’ multiple paid for alarm accounts.
I am frequently asked by my alarm dealer customers what I think their alarm accounts are worth, i.e., what multiple can they can expect from a buyer. The answer is complex as there is no “universal” multiple paid for alarm accounts.
In understanding the value of alarm accounts, there are several factors to consider. First is the quality of the contract with the customer. Buyers want the contract to have provisions that will protect them after they execute the purchase. Important items that should be in the contract are:
- The customer must indemnify the dealer
- Liability must be limited with no expressed or implied warranties
- The contract must be assignable
- Residential contracts must include the three-day right of rescission clause
- Buyers like long-term contracts (five years preferably) and the contracts should automatically renew in one-year increments
Buyers frequently reject seller’s alarm accounts because the contracts don’t contain some or all of the above provisions, or even worse, the seller doesn’t have contracts with its customers. If an alarm dealer doesn’t have contracts with its customers, then it is highly recommended that the dealer seek legal guidance and immediately rectify the situation. Not only is the dealer highly exposed to liability, but the accounts are worth virtually zero to a buyer.
Attrition is also a big factor in the valuation process. The seller’s annual attrition rate will be a good indicator of what the buyer can expect in the future. Any level of attrition under 10 percent is considered “good.” Historic annual attrition levels around 5 percent or lower are considered “prime” and will typically increase value for the seller.
As expected, buyers also place a premium on accounts that pay well. Sellers that have a lot of automated clearing house (ACH) payments and automatic debits will be more attractive to buyers. In any case, buyers are very concerned with aging on the accounts and if the seller has a lot of past-due accounts, it will negatively affect the value even to the point of possibly disqualifying certain accounts from purchase.
Buyers also like to see good recordkeeping. Sellers who have their houses in order and who can quickly produce billing information, service information and the like will be valued differently than sellers whose filing cabinets are overflowing with documents in no particular order. Electronic storage of documents is always preferred by buyers.
The Phone Number Imperative
One key trigger in reaping maximum value has nothing to do with any of the above factors. If sellers really want to reap top dollar for their accounts, it is imperative for their alarm dialers to be programmed to a number that the seller owns and that can be transferred to the buyer. Nothing will reduce the value of an account more than having the central station’s proprietary phone number programmed into all the accounts. Most buyers desire to immediately move the purchased accounts to their own central station. Accounts that have to be manually reprogrammed will negatively affect the purchase price.
Of course, reputation is also important and sellers who do a good job with service and customer relations will generally have a better chance of attaining maximum value. Most buyers will do some sort of quality assurance polling with the seller’s customers prior to a purchase. If they are constantly getting negative feedback from the customers, the value will be negatively affected or the purchase may be cancelled. Conversely, sellers who do a great job of servicing their customers are likely to be rewarded for their efforts.
In any case, it is apparent that there are many factors for buyers of alarm accounts to consider when making a purchase. The ultimate value of alarm accounts in any given transaction will be a result of weighing all of the above criteria and assessing a value accordingly. It is wise when selling, or considering a sale, to have one’s house in order
Mark Matlock is Senior Vice President at United Central Control Inc. (UCC), a wholesale monitoring station based in San Antonio.
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