Selling and Valuing Security Integrators

Author: Brian Karas, Published on May 12, 2017

This ia a tutorial in how to (1) determine your security integrator's value and (2) to sell your security integrator. If you own an integrator, want to buy one or even are thinking of starting your own one day, this is a must read.

We spoke with an M&A advisors Final Image and Reitman Consulting, both specializing in security integrator sales, about factors that impact the valuation of security integrator businesses.

This post covers:

  • How much an average security integrator is worth / can get in a sale
  • How much the sales price is driven by RMR
  • How to know when it might be time to sell your business
  • How long it takes to get a sale completed
  • How much it costs to hire an M&A advisor and prep for sale
  • What to expect after the sale

**** ** * ******** ** *** ** (*) ********* **** security **********'* ***** *** (*) ** **** **** ******** **********. If *** *** ** **********, **** ** *** *** ** even *** ******** ** ******** **** *** *** ***, **** is * **** ****.

** ***** **** ** *&* ************* *************** **********, **** ************ ** ******** ********** *****, ***** ******* **** impact *** ********* ** ******** ********** **********.

**** **** ******:

  • *** **** ** ******* ******** ********** ** ***** / *** get ** * ****
  • *** **** *** ***** ***** ** ****** ** ***
  • *** ** **** **** ** ***** ** **** ** **** your ********
  • *** **** ** ***** ** *** * **** *********
  • *** **** ** ***** ** **** ** *&* ******* *** prep *** ****
  • **** ** ****** ***** *** ****

[***************]

Valuing ** *********** ********

* ***** ******** ** ********** ***** ***** ** *.* ***** annual *****, ** ** ******, *** ** ******* *********** ********. For *******, ** ********** *****, ***, $** ******* ******** **** a **% ($*,***,***) ********* ****** ***** ******* * $* ******* sale (* ***** $*,***,*** ********* ******, ** *.* ***** $**,***,*** revenue).

* **** ******* *********, *** *** ****** ** ********* ******* would **** ** *** ***** ** ** *** * ******** of *** ********* ****** ** * ******** (** ******* *-** times) **** ****** ********* ****** ****** ***** **-**% ** *******.

******* **** ***** ***** ****** **********:

  • ****** ********* ******* ******* ********** (******* ** **** ****** *****)
  • ******** ******** **** ****
  • **** ****** ****
  • ****-*********** ****** ** ***** ** ******** *******

** *** ********, ***** ***** ****** *********:

  • ***** ** ********* *****/****** **** ** ***********
  • **** ** *** ********* (**** ** ******** ********* *** ********** annual *****)
  • ********* ** ******* ********** (** *** *** ** **** **** business ** * ****** ** *******)
  • ********** *** ******* (**** **** ~**% ***** *******)
  • **** ********** ** ******* **** * **** ***** ****** ** customers
  • ***** ******* ** *********

RMR ****** ** *****

*********** **** ****** *** *** **** *** *+ ***** **** of *********** **** ****** ***. *** ** ********** ****** ******* for *** ********, *** ** ** ****** **** ****** **** project ***** ***** **** ******* **** ** ****** ************, ***** customers *** *** ************* ********* ** *** *** ****** ********.

**%-**% ** ******* ** *** ** ********** * ******* **** in ***** ** ******** ********** ********* *** **** ******** ***** valuation. ******* ** *** *********** **** *** **** *% ** revenue **** *** *** ** **** ** * ******** ************** for *** ********.

******* ** $*,***,*** ** *** ******** ** **** **** ********* and ***** **** **** **** ******* $*,***,*** ** ******* *****, integrators *** ****** ** **** ***** ******** ** *** ****** need ** *********** ** ******** *** ***** ** *******.

*** ********** *** ********** *** *******, **** ***** *****, *** to ******* ******** ***** ** ******* ************.

*** *** *** ** ****** *******, *** *** ****-******/***-**** ********* like ***** ********** **** ** ****** ****** **** *** *** lower-margin ******** **** ******** *****, **** ** ******* **********.

Factors **** ***** *****

**** *******, **** ** ********* ***** ** *** ******* *** obvious *****-********, ******* ***** ****** **** ********** ****** ***** **** may *** ** ** ********.

** * ***** ******* ** *** *******'* ******* ***** ********* from * ***** ****** ** ********, **** ******* **** ********** be ********, ** *** **** ** ****** *** *** ** those ******** ***** **** * ***** ******** ****** ** *** business. **** ** * ******* **** **** ***** *********** *** have *** ** * *** ***** ******** **** ***** * significant, ** **** ****, *******.

********* ** ********* ****** ** ** *****, ******** ******* ****** that **** ********* ****** *** "**** ********" ** *** ********. This ** *** ** *** **** **** **** ********* ********* comes ******* ******* **** * ***** ******* ** **** ********* will ** *** ** ****, ***-**********, *******, ** ********* ***-********. It ***** **** ******** **** *** ********** ** *** **** to ******** **********, ** *** **** ******* ********* *** * project **** ***** **** *******. *** ***** ******* *********** ****** ensure **** **** *** *** ******** ****** ** *** ********* on ***** ***** ** **** *** ******** ** **** ***** company.

Individual ******** *** *** ******* ******

** ***** ***** *** ****** *********** **** ** *** ***** sold, *** ** ********** ******* ***** ** **** *** ***** shares ** ***** ** ****** ** ****** * ********* ****** that ********** **** ***** *** * ******* ***** *** ***** share, ********* ** *******. *** *******, ** *** ******* ** valued ** $*,***,*** *** ***** ** * ****** ******* *******, and *** ****** ***** *** ** *** ******** **** **** likely ******* * ***** *** **** **** $***,***. *** ******* for **** *** **** ***** ******* ****** **-**, ***** *********** ****** **** ********** **** *** "******* ****", and ** *** **** * **** ******** ****** *** ********** worth **** **** **** * ******** ** *** ******** ** sold ***. ** ***** *****, *** ********* **** ** *** a ******** ***** ** * ***** *******.

When ** *** ***** **** ** ****

** **** ******** ** ******** * ******* *******, ** *** be ** ********* **** *** **** ***** *** ******* ** far ** *** *** ** *** ******* *************. ****** ******* points ********* **** ****** * *** ******* *** *** ******* in ****** *****, ****** **** *** **** ** ****** ** other ******* **** ************* ** ********* *******.

* ******** ** ********* *****, ** ****** ********* **** *** significant *** **** **** **** **** ** ******** (>* ****) can **** ** ********** * ******** ********* **** *** *** a ********* ********* ** ** * **** **** ** **** a ****.

*********** *** **** ***** *** ******* ****** *** ******** **** indicates * **** **** ** *** ***** ******* ** *** sale. ** ***** ************ *** ***** ****, ****** ******* ** nationally, ** *** ** ********* **** ********* **** ****** ** capital *** ****** ************ ** **** ***** ** * ***** of ************** *********.

****** **** ** ***** ** *********** *** **** ******** ** is **** ** **** *** *******, *** ** **** **** more *** ******** ******* **** ******** ****. ** ******** *** see ********* ** ******* **** ******** **** ***** ************* ********** to ****** * ******** ******* *******. ****** ***** ********** ** this ****, ****** ** *** ** ********** ** ****** ****** the ******* ******* **** ** **** ** ******* ** **** afloat.

How **** ** ****

********** ** ********** **** **** *** ****** *******. ***** ***** recommended *********** **** * ***** *****, *** **** ** **** but ** *** *** ******** ** *** **** ******** ***** for ******* *********. ***** *** *** **** ******* ** *** company ** **** ******* *** *** ****** ** ******.

************ *** ******* *** ***** * **** ** ******* ** the *********** **** ** ******* *** ******* ** *** ******. Companies **** ***** ***** *** ** ***** ** **** ***** as *********** ** ** * ***-**** *** *********. **** **** identify ********* ******** **** *** ******** ***** ** *** **** time ** ******* **** ****** ******* ** ********* *********.

*** ******* ** ******* *** ******* ** *** ****** *** completing * **** *** **** *-** ******. **** ****** **** to **** **** ********* *********, **** **** **** ** ******** their *** *** ********* ******* ** ** ******* ********** *** come ** **** * *********, *** **** ********** *** ****** sale.

Advising / *********** ****

** ********** ***** *** ********* **** ***** ******** ** ***** own, ********* ** ***** ********* ********** *** ***** ****** ** prospective ******.

***** *** *&* ********, **** ***** ***** *** ******* **** help **** *** *******. ******** **** *****:

  • ***-**** *** ********* ******* **** ******* *** ******** *** **** up **** ******** *** *********** *** ********* ******* ***** **** typically **** $*,***-$**,***.
  • ********* ** "**** ****", ***** ** * ***** ***** **** on *** ******* ** **** ** ********* ********* ***** *** company. **** ******* *** ***** ******* $**,*** ** ***** ** complete.
  • ******* ******, ******* **** ************, ******* *** ****, ***. ********* is ******* ** * ********** ** ******* ***** ***** (******* from *-*% **** ***** ** **** ***** *** ****** ***********).
  • ************ *** ********* ******* ** ***** *** ********* ***** ** is ********* (*** ********, ********* ** *******).

Anyone *** ***** * ********

*********** ******* ** **** ***** ******** ****** ** ***** **** there ** ** ****** ********* *** *********** ** ************* **** provide ******* ********** ** **** *****. ***** *** *************, **** as *********** ******* ** ************ *********** ********* ** ******** *** ****** *********** ** ******* ********** *** ***** ******** in * ***** ****.

Post-Sale ************ / ****-**** / ***********

****** *** ********** ***** ** *********** ****** ****** ** ** required ** **** ** ***** *** ****. *** ********* *** considered ** ** * ***** **** ** *** ***** ** the *******, *** **** *** **** ** **** *** ******** is "******".

** **** ***** *** ******** *****(*) **** *** ** **** in **** **** *** **** ******, ******* ******* ** ****-*** over * *-* **** **** ****. ****** **** ****** *** owner(s) ***** *** * ****** **** *** ********* *******, **** their ****-*** ******* **** *** **** ** ************ **** **** agreed-upon ****. ****-**** *** ***** **** ** *********** ******* **** continued ****** ** ************* ** *** *******, *** ** ***** targets *** *** *** ***** ********* *** ******** **** ** adjusted **** ***********.

[****: **** *** ********** ********* ** **** *** ******* ** 2017 **** ******** ******* *** ********.]

Comments (10)

Thanks for the info. Half profit sounds low but of course it depends on the net Profit. Don't you think a more logical formula is net profit x X?

What would you say is the average net profit for a security company after management is paid?

Half profit sounds low but of course it depends on the net Profit. Don't you think a more logical formula is net profit x X?

To be clear, half revenue.

That's a good point though on profits. Final Image cited an average EBITDA range for integrators of 10-15% with an average valuation multiple of 4 - 6 times EBITDA, which is effectively 0.5x revenue. That is consistent with what we have seen as well.

EBITDA can vary more than revenue and also is impacted more by accounting choices (e.g., how much and how the owner and their family take payments / profits).

Also, a revenue multiple is easier for more people to understand than an EBITDA one. But, to your point, an acquirer will typically carefully check profits and adjust valuation accordingly.

"In many cases the business owner(s) will not be paid in full when the deal closes, instead getting an earn-out over a 2-3 year time span. During this period the owner(s) would get a salary from the acquiring company, plus their earn-out amounts from the sale in installments over some agreed-upon term"

That sounds like a bad deal. Let's say we have a company that does $10M in gross and nets 15% profit with a $200k owner salary.Company sells for 5X profit at $7.5M. owners stays with the deal for 3 years and gets paid $200K. After 3 years, the company would have made $4.5M to the owner if he didn't sell (that's if the company is not growing), leaving the owner with only 3M and no lumpsum advantage since he is getting his money in payment. What am I missing here? Would the owners salary be considered as $1.7M if he was asked to stay?

I sent your question to Final Image, and this was their reply regarding your scenario:

The part missing is that at the date of the sale - the owner would have realized on a base amount of the purchase price - say $5 million in this case - which he can use to generate another return. In additon - the decision to sell would be a function of wanting to exit - and he is crystalizing his value under this structure. Also 3 years would be a long earnout - we would typically see a shorter earnout period of 1 or 2 years which mitigates the risk.

Another way to look at it is that the earnout concept is generally used to bridge to a potential higher number for sellor. Ie - buyer feels company is worth 4 x = $6 million. Sellor wants 6 times = 9 million. Deal is structured as 6 million up front plus a 2 year earnout of $1.5 per year.

To add in case this is helpful:

One of the most common reasons why a seller will push for a higher EBITDA multiple is growth momentum (i.e., "Yes Mr. Buyer, but my company is worth more because the avg market growth rate is 'x' and we're growing at 'y'). To accommodate, they'll agree on a base value with an incremental earn out schedule based on mutually agreed upon future growth targets and duration.

However, these have become less popular in the last 10 yrs in certain circles, especially when the acquired company is to be integrated into another- the reason being lawsuits. Too often the seller will allege that the acquiring company negatively impacted the business (imposing different processes, changing sales people, etc..) and sue or go to arbitration. This can be expensive for both parties.

Buyer beware of earn outs.

Strategy Here , its about strategy

Items left out here are Projected Growth, Value, and Potential to multiply the figures over 5 years

sold Mine at Full Value , up Front, upon contractual signatures.

Combined with other company's it multiply's the figures.

Not always Value, But potential value , or to Just close down the competition and bring up the value of the other purchasing company

Nice Information, Thank you Brian!

I'm not complaining and I appreciate being quoted in the article, but I wasn't interviewed. Again, not complaining, but the quotes look like the substance of a presentation that I gave at PSA Tech on May 8, 2017. What I actually said was that an integrator with a significant amount of RMR should consider valuing the RMR at a multiple, then computing the EBITDA less the cash flow from RMR. The presentation was an hour long and much too complicated to explain here. The other issue is that the discounts are for lack of control and lack of marketability. The source for this is a US. Tax Court case (Holman v. Commissioner). The reference to Revenue Ruling 59-60 refers to the IRS' definition of value of a company or asset as "the price that a willing buyer would pay to a willing seller."

When using the income approach to value a company based upon cash flow or EBITDA there are two methods:

Capitalization of Earnings Method - used for a stable company, again complicated, but historical EBITDA or cash flow is discounted and a multiple is applied.

Discounted Future Benefits Method - projected earnings or cash flow are discounted back to determine a Net Present Value.

If a reader was a participant in the PSA Tec Conference he/she can download my slides from the web site.

Thanks for your interest in valuation of an integrator and feel free to email me off of this site with any questions.

3-5x ebitda is the rate is for acquisition or 32-48x monthly rmr. Most deals actually get done beween 34-40 monthly RMR. Other reasons for buyout are to pick up another manufacturer line-- however I will say that most integrators above 15mm+ have access to just about whatever line they want with a phone call and stocking order.

A company with a larger market share but smaller addressable market is generally worth more than a player in a larger metro with lower market share.

Login to read this IPVM report.
Why do I need to log in?
IPVM conducts unique testing and research funded by member's payments enabling us to offer the most independent, accurate and in-depth information.

Related Reports

Eagle Eye Favorability Results 2019 on Mar 21, 2019
Eagle Eye has been the biggest spender in the cloud VMS market including (via their owner) acquiring Brivo for $50 million and CameraManager from...
Large Hospital Security End User Interview on Mar 21, 2019
This large single-state healthcare system consists of many hospitals, and hundreds of health parks, private practices, urgent care facilities, and...
Silicon Valley Cybersecurity Insurance Startup Coalition Profile on Mar 20, 2019
Many industry people believe cybersecurity insurance is not worth it, as the voting and debate in our Cybersecurity Insurance For Security...
Top Metrics For Ensuring Integrator Profitability - Statistics on Mar 20, 2019
How do integrators ensure the profitability of their projects? As part of our profitability study, 100+ integrators answered the following...
Genetec Security Center 5.8 Tested on Mar 19, 2019
Genetec has released Version 5.8. This comes after a wait of more than a year that caused frustrations for many Genetec partners. Our previous...
Retired Mercury President Returns As Open Options President on Mar 18, 2019
Open Options experienced major changes in 2018, including being acquired by ACRE and losing its President and General Manager, John Berman who...
Large US University End-User Video Surveillance Interview on Mar 18, 2019
Schools have become targets in modern days of active shooters and terrorist fears. The need for video and access security is high. Universities...
Hikvision Favorability Results 2019 on Mar 18, 2019
Hikvision favorability results declined significantly in IPVM's 2019 study of 200+ integrators. While in 2017 Hikvision's favorability was...
ONVIF Favorability Results 2019 on Mar 15, 2019
In the past decade, ONVIF has grown from a reaction to the outside Cisco-lead PSIA challenge, to being the de facto video surveillance standard...
City Physical Security Manager Interview on Mar 14, 2019
This physical security pro is the Physical Security Manager for the City of Calgary. He is a criminologist by training with an ASIS CPP credential....

Most Recent Industry Reports

Eagle Eye Favorability Results 2019 on Mar 21, 2019
Eagle Eye has been the biggest spender in the cloud VMS market including (via their owner) acquiring Brivo for $50 million and CameraManager from...
Large Hospital Security End User Interview on Mar 21, 2019
This large single-state healthcare system consists of many hospitals, and hundreds of health parks, private practices, urgent care facilities, and...
Silicon Valley Cybersecurity Insurance Startup Coalition Profile on Mar 20, 2019
Many industry people believe cybersecurity insurance is not worth it, as the voting and debate in our Cybersecurity Insurance For Security...
Covert IP Camera Shootout - Axis, Hanwha, Hikvision, March, Vivotek on Mar 20, 2019
Covert cameras were one of the last holdout areas for analog cameras. However, in the past few years, IP / HD covert cameras have become...
Top Metrics For Ensuring Integrator Profitability - Statistics on Mar 20, 2019
How do integrators ensure the profitability of their projects? As part of our profitability study, 100+ integrators answered the following...
Avigilon Launches 'Renewed Products Program' on Mar 19, 2019
There are lots of 'pre-owned' cars but pre-owned IP cameras? While such programs are common in other industries, in video surveillance, they are...
Hanwha Tax Evasion Probe, Camera Division Implicated on Mar 19, 2019
A Hanwha group subsidiary was raided as part of a tax evasion probe. While a Korean news media report listed the raided entity as 'Hanwha...
Genetec Security Center 5.8 Tested on Mar 19, 2019
Genetec has released Version 5.8. This comes after a wait of more than a year that caused frustrations for many Genetec partners. Our previous...
Retired Mercury President Returns As Open Options President on Mar 18, 2019
Open Options experienced major changes in 2018, including being acquired by ACRE and losing its President and General Manager, John Berman who...
Large US University End-User Video Surveillance Interview on Mar 18, 2019
Schools have become targets in modern days of active shooters and terrorist fears. The need for video and access security is high. Universities...

The world's leading video surveillance information source, IPVM provides the best reporting, testing and training for 10,000+ members globally. Dedicated to independent and objective information, we uniquely refuse any and all advertisements, sponsorship and consulting from manufacturers.

About | FAQ | Contact