Consciously or unconsciously, when an entrepreneur — in this case the owner of an alarm business — wakes up, he may not realize it, but he is going to be faced with a decision of whether to buy a company (usually a competitor) sell a company (the one he now owns and manages) or do nothing at all. This usually isn't a life or death situation, and the decision is almost always made on a subconscious level. At some point, all of us are facing a time in our lives where we will have to decide whether to “buy, sell or do nothing at all”.
Let me give you a few “facts” that I've come across in my years in the industry:
On any given day, 5% of alarm dealers are either considering or have made the decision to sell their business.
For every seller there are probably 20 buyers, and each is aggressively looking for the next target acquisition.
Most dealers who have made the decision to sell are only going to do it once in their lives.
Most buyers who are looking to make acquisitions have done it before, have a system in place and execute fairly effectively.
Since we represent sellers almost exclusively, and since sellers do not have the same exposure to the merger and acquisition business that some others do, I’d like this article to “help level the playing field” and provide some thoughts as to traps that sellers need to avoid:
Never be unprepared! Even if you have no intention of selling your business, run it as though you are trying to sell it tomorrow.
A seller never knows his business as well as he does on the day that he actually sells it. That's because he spent the previous 90 days preparing the documents, getting the information and finalizing the details on the purchase agreement, which in turn is forcing the seller to learn all of the things about the business that he had not learned in the past.
Make sure you have a good, clean, original contract on every customer for whom you are providing monitoring. There are numerous attorneys that do a good job at preparing contracts specifically for their clients. We've seen pretty good results from companies who have taken a standardized approach from an “off-the-shelf” packager of contracts, such as Ken Kirschenbaum (firstname.lastname@example.org or http://wwwkirschenbaumesq.com/).
Put together a team that represents the best you can find. That team will usually include a broker/finder (which is what we do), a knowledgeable accountant, and an attorney. Speaking of attorneys, there are at least a dozen who make their living in this industry, and specialize in transactions, more specifically, acquisitions in the alarm industry. It also helps if you have one inside person who can be discreet and thoroughly trusted, to prepare all of the documents that will be needed in the final closing.
From start to finish, the whole process awaiting the seller of an alarm company can be as short as 30-45 days or as long as 6 months, depending upon how prepared the seller is. The first step in the process is simple — make a call. That first call should be to an intermediary broker, finder or any combination of those who is knowledgeable about the alarm industry and has good contacts and strong relationships with buyers who are already in the industry. The last thing you don't want to do is work directly with a buyer who has approached you to “acquire you”, “merge with you” or “partner with you.” Each of those description has a relevant legal meaning and each has a methodology all its own.
In the alarm industry, alarm companies are sold on the basis of a multiple of recurring monthly revenue (RMR). This always equates back to cash flow and, without getting in to the stuff that causes entrepreneurs' eyes to glaze over, keep in mind that the goal of a buyer in any transaction is to pay as little as possible. The goal of a seller is to maximize the value of the transaction and get as much money as he possibly can. Don't fall into the trap of having bragging rights to a large multiple. At the end of the day, it's about how much money you put in your pocket. And believe me when I tell you that the difference between what you think you're getting and what you actually might get can be as much as 20% — even more — just by the way the agreements are worded and the deal is structured.
I've been asked to name the single most important thing to do in a transaction — and my answer is, always, have fun. If you're only going to do this once in your life, and it's going to be the culmination of a lifetime of efforts, at the very least, have fun in this process of selling, work with competent people that you enjoy being with, and always remember, there is no question that you can ask that shouldn't be answered by all parties. That's all part of the process — and part of the fun!