The Security Industry Is Truly Different
By Victor Harding
LESSON LEARNED #14
I was reminded again recently that the alarm industry is truly a different industry. I co-brokered a deal recently with a very professional business brokerage outfit in Canada. Co-brokering is where 2 business brokers work on the same deal each bringing their own expertise to the table and then they split the commission.
Here is the first lesson I learned. Don’t shy away from partnering with someone on a deal because you will almost certainly learn things about the business you are in from your “partner” and 50% of a fee is better than nothing at all. I learned a pile about how another very professional brokerage firm works. Not only that but there may be more deals come after the first one particularly if partner is working in a market that you are not strong in.
The second thing I learned with this co-brokering process is that most times in these partnering you can divide up the work that has to be done- each doing what they do best- and end up getting the job done much faster. We managed to get the Business Profile done on this assignment - a job that usually takes me 2-3 weeks of solid work- in just 5 working days.
However I was reminded through this process that in many ways the security industry is different. The biggest difference comes when valuing a security alarm company. Most accountants when given the balance sheet and income statement of an alarm company will try to do use a multiple of earnings method to value the company. The problem is most alarm companies do not make much money so the accountant’s valuation will come out very much lower than what your company is worth.
As most of us know the most valuable asset in most alarm companies are the monitored accounts- and they don’t even show on the balance sheet! So a company with 1000 alarm accounts being monitoring at an average price of $25/mth might be worth $25,000 X 32 months or $800,000. This would shock an unknowing accountant so those of you that are getting valuations done be careful who you get to do them. Over and over again I see alarm companies spend a lot of money ($10,000 and up) on getting valuations done on their businesses for various reasons- banks, partnership, divorce- and the firm doing the valuation misses the boat by a country mile.
In addition my co-brokering experience reminded me of how important it is for anyone selling their alarm company to use someone to help them that knows the industry and the buyers. This does not just apply to the security industry. If you are selling a manufacturer in the food industry, I would look for a broker that knows the players in that field. General business brokers can not be expected to know all the buyers in the security alarm industry. Knowing the buyers can shorten the length of time to do a deal considerably but may also get the Seller a better deal because his or her business is being shown to someone that understands where the value is.
Finally I found out in working with this other broker that the security industry has its own format for such key documents as the Letter of Intent and Purchase and Sale Agreement with terms and clauses that are totally unique to us. Having someone that does not know this industry drafting up those documents would be risky.
Like many other industries the security alarm industry has its unique aspects. If you are planning to sell your business keep this in mind all the way through the process.
Victor Harding
Harding Security