Newsletter Spring 2015

Attention: Alarm, Integration, Guard and Fire Company Owners

This is the Spring 2015 issue of Harding Security Service’s Newsletter. We send out two newsletters a year. You can get past issues at www.hardingsecurity.ca.

Harding Security Services Inc – What we do!

Our mission is to service the security industry in Canada - alarm, integration, guard and fire companies - with the best possible advice in 3 major areas.

Our primary focus is to act as an intermediary to help security companies owners sell their business. We also do acquisition work for buyers. Connected to our acquisition work, we do valuations of all kinds of security companies. Thirdly we provide consulting advice to companies who have authorized dealer programs in the security field.

Recent Developments in the Acquisition Market

Through networking, yearly conferences and industry reading, I try to stay up to date on what is going on in the acquisition market in the various segments of the security industry in both the United States and Canada. Although prices are not often disclosed, just the same it is important to see which buyers are active and what they are looking for when they buy. I should say that there appears to be better disclosure on the sale of alarm and integration companies in the industry magazines than with fire and guard companies.

My first comment about the market is that there always seems to be buyers for good security companies even all through the last recession. The security industry weathered the recession better than most and those security companies with recurring monthly revenue (RMR) probably fared better than the rest. It is still much easier to sell RMR than installation or service revenue. Smaller players expecting to get value for the non recurring part of their business will have difficulty finding buyers unless that part generates solid earnings without the recurring revenue portion.

Over the last 2 years, I think buying activity has picked up across all sections of the security industry due mainly to low borrowing rates, plenty of available capital, much better business conditions and the attractiveness of the security industry to the investment community. We have seen big alarm deals done at multiples in the 40’s and higher. Security Networks was bought by Monitronics and Reliance- Protectron by ADT. In addition, there have been lots of small and mid-sized deals done on both sides of the border.

There continues to be more buyers than sellers at least in the alarm market . Accordingly, alarm account sellers would be shortsighted to talk to only one buyer right now. As always the key factors determining the price for alarm accounts, besides having multiple bidders are:

• The size of your account base - the larger the base the higher the multiple.
• The average rate on your accounts – the higher the rate the better the multiple.
• The % of your customers on signed contracts – the higher the %, the better the price.
• The % of your accounts on a call forward line – the higher the %, the better the price.

Private equity more so in the US than Canada have now been very active in the alarm account acquisition field and this has raised prices. Also the cable companies and telcos are beginning to show themselves in the acquisition side of the alarm industry. If they decide to use acquisitions to grow, this should also boost prices.

As with the alarm industry, the integration side of the security industry is starting to consolidate but it is mainly the mid-sized companies - $10 million in annual revenue and over- getting the attention. As many integration companies are not long on RMR, valuations are being done mostly by a multiple of adjusted earnings method rather than a multiple of RMR. In short the company has to be making good money.

There is also some consolidation happening in the fire industry as baby boomer owners start to retire. I have found it harder to find big companies active in buying on the fire side. I have found that having bigger companies buying in any sector definitely helps to keep prices up. On the other hand, the markets are beginning to realize that fire test and inspection revenue is really recurring in nature and as such demands a unique value. Finally although the alarm industry has numerous intermediaries to help sellers dispose of their business, with the fire industry not so much.

All in all, the market for selling security companies remains good. The security industry is a growing industry and players both inside and outside the industry realize this.

DEALS DONE WITH HSSI

• In Dec/13, we sold 9600 alarm accounts based in Burnaby, British Columbia in an asset sale.
• In March/14, we were involved in the sale of a ULC-approved monitored station in the Toronto, Ontario area.
• In the summer of 2014 we acted as the selling agent in the sale of 3 alarm companies and one integration company in the Toronto and Montreal areas.
• In Sept 2014, we completed the sale of a fire services company in Alberta in a share sale for about 4X EBITDA of that company.
• We are due to close the sale of a fire and security company doing $4.0 million in revenue based in Alberta, Canada at the end of April /15.
• We are due to close the sale of security and fire company with 3400 alarm accounts based in Eastern Ontario at the end of May /15.
• Recently we have branched into the world of Internet Service Providers (ISP) helping a client buy an ISP.

DEALS IN THE WORKS

• A small, but fast-growing integration company based in Richmond Hill Ontario with 380 monitored accounts and doing $550,000 of revenue.
• A well-known, profitable fire services company based in British Columbia doing about $1,000,000 in revenue annually. 4 techs, 2 clerical, 1 GM.
• A ULC-Approved monitoring station for sale based in Central Ontario, Canada that does approx. $110,000 of monthly recurring revenue.
• An alarm company in Eastern Ontario with 1,000 accounts.
• A small fire services company based in Toronto.
• An integration company doing $800,000 annually based in Northern Ontario.

CONTACT HSSI

Why you are getting this newsletter

If you are getting this newsletter, it is for one of the following reasons:

• I have met or talked to you over the past 20 years that I have been in the industry.
• You or your company are a member of one of the following security organizations all of which I am a member of - Canasa, CFAA, CSAA, ESA or the SIA.
• We have LinkedIn together.

If you would like me to use another email address to deliver this newsletter or if there is someone else in your organization that you would like to receive this newsletter, please email victor@hardingsecurity.ca.

About Harding Security Services Inc. (HSSI)

In 2009 Victor Harding formed Harding Security Services Inc. (HSSI) to leverage his skills, experience and network of contacts in the security industry to provide independent advice to owners who wanted a) to sell their company or buy another b) have a valuation done on their company or c) design or improve an authorized dealer program- all services provided more in the US than in Canada.

In its M & A work, Harding Security Services Inc. (HSSI) works with sellers to guide them through the entire process of selling including the creation of a Confidential Business Review or selling package, finding buyers, receiving bids, negotiating the terms of a Letter of Intent, managing the due diligence process and working with the owner on the Purchase and Sale Agreement to close the deal. For this, HSSI is paid a small % of the final sale price. HSSI also uses its knowledge of the market and its contacts to help owners to buy companies as well.

In its valuation work, HSSI primarily utilizes Victor Harding’s accounting background (CPA) and his knowledge of alarm, fire, guard and integration businesses, how they are valued and his familiarity with ow deals have been done in each market. Most importantly, we understand how to value recurring monthly revenue (RMR) which is often a big part of many security companies and is valued differently from normal business revenue. HSSI is paid a flat fee on valuations based on the complexity of the deal.

Finally, in work on authorized dealer programs, HSSI capitalizes on Victor’s 15 years of experience in designing these programs first with his own network of dealers and then with VOXCOM and Protectron. Here HSSI bills out it’s time as a consultant at an hourly rate.

Victor Harding is a Chartered Accountant( CPA) by training and lives and works in Toronto, Canada. Before buying a security company in 1994, he had many years of small and large company experience in senior financial, sales and consulting roles in both privately-controlled and publicly-traded companies. You can learn more about him at www.hardingsecurity.ca.

Victor Harding

Harding Security Services Inc.

P: 416-925-7474

E: victor@hardingsecurity.ca