Subscriber Discussion
Ken Kirschenbaum And RMR 2018, 2020, 2021
[IPVM Note: Kirschenbaum has objected to this member's comment and title. We are citing his May 18, 2018 post to explain Kirschenbaum's current position:
Fortunately for the alarm industry, the multiple has been fairly constant for a long time. Depending on how you have run your business, particularly which contracts you use and how you get them signed, you can expect 35 times, give or take 5 times. That leaves a 10 point spread, and if you're on the lower end, you deserve it. If you're on the higher end, you deserve it too. Being smart should have its advantages, and in this business it’s measurable, 10 times.
IPVM Note End]
Ken Kirschenbaum, who writes a newsletter that is closely read by many in the industry, sent out a new article today entitled Issues that concern buyers of alarm accounts are matters you need to deal with now.
The relevant passage is here:
If a buyer is paying 35 times plus for your alarm contracts the buyer has some confidence that the accounts are worth buying; they have value, and that value is measurable by the multiple the buyer is willing to pay. Conversely, if a buyer isn't willing to pay anything for an account, or less that the other accounts, it stands to reason that the buyer does not think those accounts are worth much, if anything. In fact, these identified accounts are probably worth nothing and will only be a potential liability, unless they can be turned into accounts that measure up to the full value of the other accounts, the 35 times.
In other words, Ken Kirschenbaum, one of the canniest observers of alarm industry trends, thinks that the most a buyer would ever pay for a highly profitable monitoring account with an airtight contract and no problems is 35x. This is bad news for ADT or anybody else hoping to cash out on their accounts anytime soon. I remember not long ago when 38-42x was the standard and 35-32x was what you could expect to pay for accounts with problems. Even accounts with equipment problems could expect to go for 22-24x, as long as the subscriber's credit was good.
The time is coming when the bottom is going to drop out of the residential alarm industry's business model. If you rely on residential alarms for a significant portion of your revenue, either figure out a way to be profitable on the install, or sell your accounts the second you get your hands on them. The volume resi business is not sustainable.
06/02/18 07:29pm
About your excerpt from Kirschenbaum Newsletter. Ken probably would ask you to post the rest of the article to be more accurate. (Note.. I am not a spokesperson for K&K just one of his subscribers).
Most of us insiders agree that the term “multiples” is almost a meaningless term without lots-and-lots of other support data. Buyers focus on “future value”, whereas sellers focus on “current value”. Very different. No need for the technical detail this post, but a typical RMR portfolio could have over 15 different types on monitoring RMR, ranging from long-term mandated fire systems, to short- term elder-care PERS. A portfolio with all mandated fire systems could attract over 50x, whereas eldercare PERS might struggle to get 12x.
However generalizing with 35 X “as a ceiling” could be appropriate if specifically referencing “deterrent type” RMR systems. These are outdated systems, residential and commercial, from the 50 year old business model that are mostly simple motion sensors and warning signs, intended to deter the bad guys with the threat of rapid police response. Also the cause the false alarm problem that now delivers slow or no police response. The majority of monitored systems in the US are these low priority deterrent systems. Historically, the typical portfolio of RMR systems was co-mingled with the higher priority “defensive systems”. Defensive systems are remote witnessed threats via audio and video and analytics. Deterrent systems will see lower multiples, whereas defensive systems will keep their high or higher multiples. Yes… VERY confusing!
Special note: The two public companies, ADT/Apollo and ASCENT/ Moni both are scraping the bottom their market value. Moni dropped from $88 to $2, and ADT was near the bottom @$7. Both firms have heavy inventory of low priority deterrent systems.
Source: Lee Jones; Support Services Group; LeeSSG@att.net
Kirschenbaum has objected to this member's comment and title. We are citing his May 18, 2018 post to explain Kirschenbaum's current position:
Fortunately for the alarm industry, the multiple has been fairly constant for a long time. Depending on how you have run your business, particularly which contracts you use and how you get them signed, you can expect 35 times, give or take 5 times. That leaves a 10 point spread, and if you're on the lower end, you deserve it. If you're on the higher end, you deserve it too. Being smart should have its advantages, and in this business it’s measurable, 10 times.
Note: I've also changed the title since the member claimed he knew what Kirschenbaum 'thinks' and Kirschenbaum says he does not think that.
In other words, Ken Kirschenbaum, one of the canniest observers of alarm industry trends, thinks that the most a buyer would ever pay for a highly profitable monitoring account with an airtight contract and no problems is 35x.
Though if one simply has used “Standard Form Kirschenbaum TM Contracts” Ken says that 35x is the minimum to expect:
and then even goes on to say (in an easily misconstrued way) that it could be “5 or more times” higher.
And that’s just the “Standard Form” ;)
I won't defend Ken, nor shall I defend many lawyers as I am partial to Shakespeare. [Henry the IV, Part II; Dick the Butcher]
Referencing a consistent and quality agreement, properly executed between the customers and the company, with a transferrable clause, as well as insurance throughout the operation of the company, will affect the valuation.
You might be surprised to know how many companies were started with either plagiarized versions of a large company contract or no contract at all. Hey, we are just a handshake type of business. Maybe outdated agreements that didn't actually meet the local state laws.
There could be an entire course on how to increase the resale value of your company, put on by a lawyer, broker and insurance agent.
Referencing a consistent and quality agreement, properly executed between the customers and the company, with a transferrable clause, as well as insurance throughout the operation of the company, will affect the valuation.
What you say is true. And if Ken said the same that would be fine.
Instead Ken claims that if someone simply uses his form, that buyer should expect to pay a minimum of 35x.
Without consideration of how well the accounts have been serviced, the demographics of the accounts, the attrition etc.
Instead it seems like a sales pitch.
”All that glitters is not gold.”
"Instead it seems like a sales pitch."
That's because it is. If you read KK regularly, then you know his whole newsletter is a constant sales pitch that shamelessly claims that if you don't use his contracts then you are an idiot, a fool, a moron, etc., etc. I find his approach a real turn off. He touches on many truths however his constant heavy sales pitch is a bore. He's a New Yorker and presents as one. His attitude may bear fruit in his region but I find him arrogant and closed minded, treading the same worn ground over and over again.
Having sold an alarm company, and working with others that have, the determination of value changed from the days of old and frankly the RMR multiple is just a way to guestimate the actual cost/sale price.
If I have 500 home or small business accounts that are paying me a monthly fee of $20.00 per month and the contracts are now at least 3 years old, and the services rendered is only burglary and panic alarm signals over a Central Station owned telephone line or many lines that can't be forwarded. I would get a very low RMR. All they are buying is the revenue stream and a lot of work to move the accounts.
If I have 20,000 home, business, fire accounts that are paying me between $20.00 and $120.00 for services including burglary, panic, fire, open/close status, cellular backup, with a Central Station I manage and own my lines on along with inspections and I have a installation volume of $10,000,000.00 per year I will get a much higher purchase price because they are buying an ongoing business and revenue stream.
The amount of due diligence can be surprisingly similar. IMHO
Ken Kirschenbaum doesn’t know what day it is.
Literally:
I think he plans out his newsletters in advance, publishes them on his site but then sends them out later typically on the date listed on the site for the entry.
So he’s writing a daily newsletter, a week and half ahead?
Do you know how hard it is to bang out a newsletter each and every single day? He probably does a few at a time, and releases them once a day. This way he can take a day off if he wants. The man has a day job, after all. And it's not like he (generally) deals with breaking news, the way IPVM does.
Do you know how hard it is to bang out a newsletter each and every single day?
How about three?
Yes, that is my interpretation. Related, I think he would do better to release the newsletter 2x or 3x a week and save it for bigger news items. A lot of the newsletters are a single random comment or not much more. From a marketing standpoint, there's value staying touch every day but I bet there's more value (and far less annoyance factor) of lower volume but higher substance newsletters.
Yes, that is my interpretation.
Apparently, you are correct and Ken does know what day it is.
On the other hand Ken is not amused at me signing up for the untimely newsletter:
Good news, I got approved after responding thusly:
Have to credit Zwirn on this one :)
You're different.... :)
Speaking of which, in today's Kirschenbaum newsletter:
Alarm Funding Associates is listed on TheAlarmExchange.com, in the Financial Services category and that means you can trust them.
So since a company is on his classifieds ad page, an attorney is saying people 'can trust them'. I would think attorneys would be more cautious about giving out such strong endorsements?
I would think attorneys would be more cautious about giving out such strong endorsements?
Ken already threw caution to the wind when he endorsed the Zwirn backed DragonFly, before it crashed.
At least he got a free system (for a while).
Kirschenbaum has a new newsletter (2020) on the same topic: What’s the current multiple? January 15, 2020 saying:
it’s still around 35 times your RMR provided have proper contracts and you have taken measures to conduct your business to maximize your equity in the contracts.
And then he gives a recent example of 40+:
If I go back 4 months I can tell you that a small to mid-sized deal with all updated Kirschenbaum Contracts ™ fetched 42 times.
He cites multiple deals going for less but blames them on not using his contracts:
In the last 30 days my office closed on 3 alarm transactions. The multiples were 23, 28 and 32. They all shared one common factor: none of the sellers used Kirschenbaum Contracts ™. In two deals many customers didn’t even have written contracts.
What do you think of the state of alarm deals in early 2020?
New Kirschenbaum email where his stance is relatively more optimistic than last year:
In my opinion the multiple hasn't changed over the past many years, it's still 35 times your net RMR. That doesn't mean you're going to get that multiple because you may have done more, or less, than adhere to recommended best practices. If you're done more then perhaps you will get a multiple of 44 or more; if you've done less, perhaps you will hear offers of 18, or less. Big swing in price and that's because not all alarm owners run their business the same way. K&K is presently working on about 10 alarm deals as I write this article. We represent sellers and buyers and sometimes both. I "brokered" a few of the deals, but not most of them. The deals are priced between 32 and 44 times. The price starts at 35 and moves up or down based on the accounts.
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