I donÃ¢â‚¬â„¢t care what anyone says; ItÃ¢â‚¬â„¢s a sellerÃ¢â‚¬â„¢s market
ThatÃ¢â‚¬â„¢s right, you heard me: it is
a sellersÃ¢â‚¬â„¢ market and donÃ¢â‚¬â„¢t let anyone tell you it isnÃ¢â‚¬â„¢t. I must have sat in on a dozen speeches/seminars/conversations with experts/brokers/lawyers/just about everyone who has said the same thing - with the demise of ADTÃ¢â‚¬â„¢s aggressive account purchase program, the lack of any prominent utilities, telephone companies or cable companies gobbling up accounts, that itÃ¢â‚¬â„¢s turned into a buyerÃ¢â‚¬â„¢s market.
Well, that just isnÃ¢â‚¬â„¢t true. In my recently adopted new profession, IÃ¢â‚¬â„¢m now a business broker or as my lawyer tells me, IÃ¢â‚¬â„¢m a Ã¢â‚¬Å“finderÃ¢â‚¬Â - I bring buyers and sellers together. As a result, IÃ¢â‚¬â„¢ve had an opportunity to be on the Ã¢â‚¬Å“insideÃ¢â‚¬Â of a number of transactions in the last year and have come across a startling revelation - when you have a quality base of accounts housed in a well managed business, well documented and with all of the right contracts, you can command a premium in todayÃ¢â‚¬â„¢s market. A rather substantial premium.
In the last year, IÃ¢â‚¬â„¢ve helped sellers sell their RMR in multiples up to and including 44 times. I have talked to other people who represent buyers and or sellers who tell me the same thing - for a quality base of accounts, the multiples are high.
Of course, weÃ¢â‚¬â„¢re not talking about relatively small numbers of accounts; 50, 100, or even 500 is not enough accounts to command a high multiple. However, for those companies that fall into the Ã¢â‚¬Å“mid-rangeÃ¢â‚¬Â of size, between 500-2,500 plus accounts, the price a strategic buyer might pay could well exceed what some Ã¢â‚¬Å“expertsÃ¢â‚¬Â suggest is the current multiple.
Plan your exit strategy
Now, here comes the small print. Everything youÃ¢â‚¬â„¢ve ever heard or read at a seminar or in an industry publication about how to prepare an exit strategy is true. In fact, if you take a look at my Iron Rules (see June 2002 Security Systems News), youÃ¢â‚¬â„¢ll notice the first Iron Rule for every manager and owner is Ã¢â‚¬Å“Always plan your exit strategy whenever you plan for your business!Ã¢â‚¬Â ItÃ¢â‚¬â„¢s as true today as it ever was. The account base has to be pristine - quality contracts, quality installations, quality reputation, quality products installed (standardized, if possible), and the ability to call-forward or instantly reprogram lines. My guess is that there are about 1,000 companies that have a book of business that would meet those general guidelines.
Now as soon as this article gets into print, I know IÃ¢â‚¬â„¢m going to get a couple of dozen calls or e-mails asking me if I can help sell 50, 100, or 200 accounts (in some cases, each month for the mass marketers) and IÃ¢â‚¬â„¢m probably not going to be able to help you with that much.
The market today is somewhere betweenÃ‚Â 18-24Ã‚Â timesÃ‚Â RMRÃ‚Â for relativelyÃ‚Â small accountÃ‚Â bases, though it may be a little bit higher for quality monthly purchases.
However, for all practical purposes, the general range is somewhere in the 28-30 times RMR. Where a premium is paid, there is usually a buyer and a seller who fit very well together - the buyer is looking to expand or build upon an existing geographical area for which the sellerÃ¢â‚¬â„¢s base of accounts represents an excellent strategic fit.
Multiples can go higher
Multiples can even go even higher than above normal, if the seller is willing to accept terms other than all cash (with a holdback, of course). WeÃ¢â‚¬â„¢ve just structured a transaction wherein the seller wanted to continue to work in the industry, had a strong base of referrals and loved what he was doing.
What he didnÃ¢â‚¬â„¢t love wasÃ‚Â the managerial and administrative effort that is required to run a business with approximately 1,000 plus accounts. HeÃ‚Â had some immediate financial needs but nothing which was extraordinarily large.
The deal was eventually structured so that theÃ‚Â buyer paid half of anÃ‚Â extremely healthy multiple directly up front, and the seller took a five-year contract for the balance, which was paid in 60 months of equal installments plus interest.
Now I donÃ¢â‚¬â„¢t recommend a transaction like this frequently but in some cases it might be advantageous, almost working like an enforced savings or retirement program.
Work with the buyer
In another instance, the buyer agreed to pay an extraordinary multiple for a book of business (roughly $60,000 in RMR), but only if the seller agreed to work a referral program with his original customers for at least a year going forward after the deal.
ItÃ¢â‚¬â„¢s been almost a year now, and last month our intrepid seller (who is now a millionaire) wrote $65,000 in new business. He has never been happier and neither hasÃ‚Â the buyer.
The lesson is...
WhatÃ¢â‚¬â„¢s the lesson, the moral of all of this? If quality is a way of life for you, and it shows in everything that your company does, there are plenty of potential buyers who would love to acquire your accounts, or partner with you, or figure out a way to help you achieve your own Ã¢â‚¬Å“exit strategyÃ¢â‚¬Â.
Be ready for when that day happens so that it wonÃ¢â‚¬â„¢t catch you by surprise and give you the angst and uncertainty that goes with any human endeavor where we have not done our very best.
Ron Davis is the co-founder of the Graybeards Advisory Group, which brings together a dozen experts in the industry to provide consulting and speaking services to alarm companies.