Security Dealer & Integrator

JAN 2018

Find news and information for the executive corporate security director, CSO, facility manager and assets protection manager on issues of policy, products, incidents, risk management, threat assessments and preparedness.

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Buyers value targets based on finan- cial benchmarks. Sophisticated buyers rely on cash flow valuations to make sure RMR valuations make sense (are you really sure the deal is profitable at 36 times? What about 40?). e "art" on the selling-side is con- vincing the buyer to share upside in purchase price or other accommo- dations. Most sellers are experts in alarms – very few are experts in deals; thus, a smart seller retains an artist to "paint the right picture." 3 Prepare for exit on day one. Your upside is to sell your RMR at a healthy multiple. If that is your goal (it probably should be), the recipe should be to run the business each day as if you intend to sell the next day. at begins on your first day in business and never stops until a sale is closed. e recipe includes efficient sales efforts, effective subscriber saves, enforceable contracts, clean commu- nications paths, updated financial records, and sensible contracts with employees, sub-contractors, suppliers and service providers. 4 Top-dollar sellers get paid for their selling machine. Here's an insider's secret: It is one thing to buy an attriting pool of accounts; it is quite another to buy a well-oiled sales machine that replaces attrition and then some. at differ- ence adds up to several multiples in the purchase price. I have seen too many tired opera- tors sell long aer they lost their mojo, which means they did not get as much as they could. Timing is everything. Get out at the right time. If not, make sure you have the endurance to hit it 26 Security Dealer & Integrator / www.SecurityInfoWatch.com January 2018 Legal Watch BY ERIC PRITCHARD It is one thing to buy an attriting pool of accounts; it is quite another to buy a well-oiled sales machine that replaces attrition and then some. That difference adds up to several multiples in the purchase price." I n the past 20 years, I have closed hundreds of industry acquisitions – both as lawyer and broker – working for both buyers and for sellers. ere is plenty of deal activity out there, espe- cially given the industry's mix of baby boomer owners and the need for strong players to replace attrition each year. With 2018 shaping up to be another busy one for security industry mergers and acquisitions, here are five insights for industry buyers and sellers: 1 Buying an alarm company is a science. Buying an alarm company is mostly about the num- bers. ere are other factors that come into play, but the deal won't work if the numbers don't work. If you are a new strategic buyer, model the deal – purchase price, cost of capital, attrition, holdbacks, acqui- sition related costs and return on interest. Will it work given reason- able assumptions? If you are not an expert, seek counsel from an expert financial professional. ere is also a list of important diligence undertakings a buyer must successfully accomplish, ranging from confirming a series of basic legal issues (such as the seller's authority to do the deal) to ensuring a buyer doesn't end up paying the seller's unpaid state taxes post-closing. Inadequate due diligence? Caveat emptor! In the final analysis, have the right team of "scientists" if you are a buyer. 2 Selling an alarm company is an art form. On the selling side, the art is about how to get the best deal possible – even working to "draw back" some of the buyer's upside in the deal. 2018 M&A; Prep Five veteran insights on the process – whether you are a buyer or a seller on all cylinders until you do. If you want top dollar, show the buyer your well-oiled sales machine. 5 Make sure your deal is a win-win. ere's nothing worse than buyer or seller banking on a "gotcha." If the deal doesn't work for both sides, the deal will not work for either side, and you can expect trouble post-closing. A buyer might get away with this approach nine deals out of 10 but the 10 th will likely make up for any advan- tage in the first nine – plus, it is a small industry, and buyers (and sellers) end up with reputations. I have counseled more than one seller to take a slightly lesser offer from a more reputable buyer. e multiple is important, but the net purchase price is what is most important. Keep your eyes on the prize. ■ » Eric Pritchard is a Philadelphia lawyer who works to make the world safer for security and life safety providers. Contact him at epritchard@ kleinbard.com. This column does not constitute legal advice; please contact an attorney with questions.

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