Why Alarm Accounts Sell as a Multiple of RMR While Integration, Fire and Guard Companies Sell as a Multiple of Earnings

Understanding the Differences in Valuation Models

When security and fire protection companies change hands, their valuation is often approached differently depending on the nature of their revenue streams. Alarm companies, particularly those with significant Recurring Monthly Revenue (RMR), are typically valued based on a multiple of their RMR. Fire protection companies and guard service providers, on the other hand, tend to be valued based on a multiple of adjusted earnings or EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization).

This distinction isn't arbitrary—it reflects fundamental differences in how revenue is generated, how predictable the cash flow is, and how risk is assessed in each business model. Below, we break down why these differences exist and what they mean for buyers and sellers in the industry.

RMR: The Gold Standard for Alarm Company Valuations

For alarm companies, RMR is the defining asset that sets them apart from other security and fire-related businesses. Recurring revenue represents contracted, predictable, and highly profitable cash flow, which is attractive to buyers because it continues generating revenue over time with minimal additional effort. This makes RMR a stable and measurable asset for valuation purposes.

Factors That Influence the RMR Multiple

The multiple applied to an alarm company’s RMR varies mainly based on the following characteristics:

• Total Number of Accounts – The larger the account base, the lower the risk of major revenue disruption.
• Average RMR per Account – Higher-value accounts command better multiples primarily because they produce higher gross margins. A buyer can pay off their purchase price faster with higher margin accounts. Today buyers like to see the average rate on an account base at $35-$45/acc/mth or even higher
• Annual Attrition Rate – Low attrition means more predictable revenue, driving up valuation. Generally, any annual attrition rate of 7% or less is considered attractive.
• Percentage of Signed Contracts – Buyers prefer accounts with signed contracts which have the proper waiver of liability of the back on the contract.
• % of Accounts programmed to Seller’s lines – Accounts all programmed to the Seller’s lines and call-forwarded versus those programmed directly to the station’s lines are easier to transfer and therefore looked upon as more valuable.

Because of these factors, alarm companies that score well on the above factors can typically sell for multiples of 30 to 40 times their RMR. In comparison, other businesses in the security sector are often valued based on entirely different metrics.

Why Integration, Fire Protection and Guard Companies Use Multiples of Earnings or EBITDA

Unlike alarm companies, fire protection and guard service companies rely more on one-time or project-based revenue streams rather than predictable RMR. This means that their cash flow is inherently more volatile, making earnings-based valuation models (such as EBITDA multiples) more appropriate.

Factors That Influence EBITDA Multiples

The multiple applied to a fire or guard company's EBITDA depends on:

• Size of the Company in terms of Annual Revenue- Size matters here as it does with RMR based companies. Companies doing > $10 million in annual revenue will sell for higher multiples than companies doing $2 million in annual revenue.
• Profit margin is important- Companies making higher % (10%) of sales in Net Profit will trade for more than those making lower percentages.
• Revenue Concentration – Companies with diversified revenue sources tend to secure higher multiples as they represent less risk to the buyer.
• Growth Trajectory – Fast-growing companies are more attractive and receive stronger valuations. Buyers generally base their price on the past but are really buying the future
• Operational Structure – Businesses with management teams fully independent of the owner and scalable operations are more valuable.
• Customer Contracts & Retention – Higher retention and contract stability increase valuations.

Generally, smaller fire and guard companies sell for 3 to 5 times their EBITDA, while larger, well-structured businesses with strong recurring service contracts may command 5 to 7 times EBITDA.

The Critical Role of Free Cash Flow in Valuations

While alarm companies are often valued using RMR multiples, it’s important to remember that underlying all valuations is a company’s free cash flow. At the end of the day, a business is only worth what it can consistently generate in excess cash flow after operational expenses.

Why Free Cash Flow Matters

• Free cash flow for an alarm company is often calculated as monitoring revenue minus monitoring and service costs net of any revenue earned in service.
• Some alarm accounts have margins as high as 75%, making them highly attractive.
• Lower attrition accounts command higher multiples because they secure longer-term cash flow stability.

Buyers ultimately care about the sustainability and predictability of cash flow, whether it's coming from monitored alarm accounts, service agreements, or ongoing guard contracts.

The Blurring Line: Fire Services Adopting Recurring Revenue Models

It’s worth noting that some fire inspection and service companies are now adopting RMR-based pricing structures, which changes how they are valued. Fire system monitoring and recurring inspection contracts are increasingly treated similarly to alarm RMR—albeit at lower multiples than traditional alarm monitoring revenue because their margins are lower.

This shift reflects the broader industry trend toward securing long-term, contract-driven revenue streams, which provide more stability for both buyers and sellers in the market.

Final Thoughts: Understanding the Right Valuation Model

If you are buying or selling a business in the security industry, understanding these valuation models is critical:

• Alarm companies: Sell based on multiples of RMR due to their stable, recurring cash flow.
• Integration, fire and guard companies: Sell based on multiples of adjusted EBITDA, reflecting their reliance on transactional revenue.
• Free cash flow is king: Regardless of the model, buyers ultimately focus on long-term, predictable earnings potential.

If you’re considering selling your alarm company, integration, fire business, or guard business, knowing how your business will be valued can help you maximize your selling price.

Post script

A month ago, I moderated a session on AI and what it can do for the security industry. In that session I indicated I was already using Ai to help me in my business. It is noteworthy that most of this article below was produced by AI with me making a few edits before submitting to SPT News.

Victor Harding

Harding Security Services Inc

victor@hardingsecurity.ca

Harding Security Services specializes in M&A advisory for security businesses in Canada, helping owners navigate the complexities of valuation, selling and deal structuring.