AFA garners $50K RMR from buy

Thursday, August 5, 2010

SYOSSET, N.Y—AFA Protective Systems expanded its presence in Atlanta with the purchase July 31 of the alarm business assets of Kratos Southeast.

The purchase, terms of which were not released, was made through AFA’s subsidiary AFA Southeast. The assets include vehicles, some inventory, and accounts representing $50,000 of RMR. Four technicians will also join AFA.

AFA Protective Systems CEO Robert Kleinman said the accounts are primarily for commercial fire alarm monitoring, maintenance and inspection services. AFA’s business is 90 percent commercial, and fire represents 35 percent of overall RMR. Total monthly recurring revenue is $2.4 million, Kleinman said.

The acquisition comes with “several high-profile accounts, which will definitely enhance our credibility and visibility in the Atlanta area,” Kleinman said.

A super-regional with 13 offices spread along the East Coast and South East, AFA already had a significant presence in Atlanta. The former Kratos accounts have been rolled into the operations of AFA Southeast.  Kratos decided to sell, Kleinman said, because it was divesting its alarm operations in that area.

Most important, Kleinman said, the acquisition will “enhance profitability in that area, because we’re bringing on this kind of RMR without a lot of expense.” AFA “will also get their work in progress,” he said.

Acquisitions of this size are rare for AFA, which has concentrated on organic growth. While new business “has been off the past year and a half or two years,” Kleinman said he’s seen an “uptick in overall sales for the past two months.” And, AFA’s RMR has consistently grown organically year over year.  “Sometimes it’s nominal, sometimes it’s four percent.” And four percent is significant when you’re talking about $2.4 m in RMR, he points out.

Kleinman attributes the company’s success to its business mix and “very low” attrition rate. Growth areas in the past 10 years have been concentrated in camera, card access, and maintenance work on the security and fire side.

Why doesn’t he do more acquisitions? “With acquisitions we have two goals: number one is to enhance shareholder value and goal two is to make a profit. In order to go forward with an acquisition, it has to help us with both of those goals,” Kleinman said. “And it's difficult to do both.”