Myth #3 -- Police emergency response is an integral part of the RMR contract.
False. The police have no obligation to your private customer contract. For decades the local police have been a core value of the infrastructure of the alarm Industry and was assumed to be part of the RMR contract. However, police all across the country are losing confidence in monitored alarm systems due to decades of near total error through false alarms. The police alternative is to remove the emergency priority, turning from fast and reliable emergency response to slow and unreliable courtesy visits. Buyers of RMR contracts are beginning to compare local 911 response times with actual alarm response times and then matching the results with the RMR customer expectations. The wider the gap is, the greater there is a need for private response or updated verification monitoring. And this can significantly impact ROI. Historical standards no longer add future value.
Myth #4 -- All RMR contracts have the same value.
False. Contracted RMR can come from multiple sources, including 24/7 monitoring, fire inspections, real estate, maintenance and service contracts. In addition, there is potential revenue from installations and product sales. A closer examination of selected customer contracts could determine that some customers are not charged enough or too much. Both case can impact attrition. A good buyer will analyze each revenue source to determine the earnings potential and long-term sustainability.
Additionally related to Myth #4 is the that we reference the RMR contract document as the primary asset of security suppliers. But we also know that these customer contracts have had decades of legal evolution. Consequently a seller should be giving their documents careful consideration before the negotiations start. Some of the early agreements will allow liability to follow the seller even after the sale. And some of the RMR documents could be interpreted as deceptive business practices, negating nearly all value. It is not uncommon during negotiations to see a buyer remove large numbers of contract assets or downgrade the value due to these legacy liabilities. If they would not fit a prospective buyer, they should not continue to fit the seller either, and should be fixed to preserve or add value.
There's one final piece of advice for those of you considering selling your company along with your contracts. Don’t be insulted if some prospective buyers do not want the operating company. The firm can have years of local goodwill supported by thousands of dollars of promotional costs, yet be of little or no value in the buyer’s eyes when compared to the contracts. That’s yet another reason sellers and buyers should “update their profile” just like they would at an online matchmaking site before seeking the most compatible mate.
About the author: Lee Jones is president of Support Services Group. He is a 35-year veteran of the alarm industry who specializes in business development and buy/sell planning.