Selling and Valuing Security Integrators
Author: Brian Karas, Published on May 12, 2017Login to read this IPVM report.
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Comments (10)
Undisclosed Integrator #1
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?
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Undisclosed Integrator #1
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?
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Christopher Freeman
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
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Marty Calhoun
Nice Information, Thank you Brian!
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Mitch Reitman
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.
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Undisclosed Integrator #2
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.
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