Make Sure You Address These 4 Areas When Selling Alarm Accounts

Legal expert Ken Kirschenbaum explains the importance of having bargaining strength, customary terms and more to assess as a seller.

It would not always be true to say that as a seller of alarm accounts you’re in the driver’s seat; you can, within reason, set your terms. There are so many factors that come into play when assessing relative bargaining power and, therefore, there is no hard and fast rule that can be easily applied in all situations.

There are four issues to address when selling alarm accounts:

  • Your bargaining strength.
  • What is and is not customary terms in an Asset Purchase Agreement (APA).
  • When and how far you are willing to bend; how much risk you are willing to take.
  • Have an expectation of how much of the purchase price you’re going to end up with, and you need to be able to assess your risks and probable outcome when the transaction is complete.

As a seller you may have a good idea of bargaining strength, though confirmation comes in only one sure way — offers from prospective buyers. You can safely assess this issue on your own by exploring potential interested parties, though you are better off engaging a professional at this beginning stage.

A professional would be a well-known broker or an attorney very familiar with this industry. You have no business trying to deal with the second bullet point above on your own. The only professional you should rely on is your attorney — not your accountant, not your broker, not your buddy who sold and not yourself. I don’t care how many deals you have done.

The third bullet point is closely associated with the second. How far from customary are you willing to go? The answer will affect the fourth issue, whether you have any chance of coming close to your expectations for what you end up with.

You need counsel to assist with issues two through four. The sooner you engage counsel the more likely you are to structure the best deal for yourself.

Too often a buyer doesn’t know what’s customary, and neither does their counsel. Once you allow the deal to take shape, referring to its terms, the less likely you will be able to extricate yourself from bad terms and a bad deal.

All too often you finally figure out you’re in a tough spot when it’s too late to cancel the deal. You’ve already got one foot out the door and you simply don’t have the energy or will-power to start over with another potential buyer. So you accept crappy terms, terms that exponentially increase your risks, and often for no reason.

For example: Buyer refuses to indemnify you for post-closing claims and back that indemnity up by naming you as an additional insured.

This is something you probably didn’t discuss during your preliminary negotiations; it’s something that springs on you in the APA, often after you’ve already packed your bags.

Do you back off and hope that you don’t get brought into a lawsuit for a post-closing claim? Do you continue to carry your own insurance and at what expense and for how long? Certainly you didn’t consider that expense when you were figuring out your net on the sale.

A related issue that doesn’t come up until you see the APA, that’s often a few days before the sale is supposed to take place, is your guarantee.

How is it worded and are there any conditions precedent to enforcement? In other words, under what circumstances is the guarantee voided?

A related issue is whether you’re going to be liable on your guarantee beyond the holdback. It’s a simple issue, easily understood. Both you and the buyer have estimated the attrition and corresponding purchase price reduction. Who is going to accept the risk of error, you or the buyer?

This should be one of the first questions addressed when you first start talking to a potential buyer, and certainly not the only issue.

It’s your company, it’s your money. You can sell for whatever you want and accept all kinds of risks that can affect the ultimate amount that ends up in your pocket. But what risks you are willing to take changes dramatically as the deal gets closer to closing. The more you have prepared to close and get out of the business the less bargaining power you have to deal with APA issues that inevitably arise.

The lesson is clear. Engage knowledgeable counsel as you can; probably as soon as you decide to sell, before you think of engaging a broker, before you talk to potential buyers and definitely before you reach the handshake stage.

About the Author

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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.

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