Service/funding: Alarm companies ask the right questions

Security is always essential, but especially around the holiday season and even after it becomes a critical issue and alarm monitoring companies are there to help. According to market research firm, The Freedonia Group, U.S. electronic security system demand will rise 7.8 percent annually through 2012 and the more mature alarm and CCTV segments will rebound along with new housing construction. This month, we’re going straight to the sources, the alarm monitoring companies themselves, to hear their companies’ mantra in tough times like the ones facing new residential construction right now, how they operate with the accounts that they have, what they’re seeing on the leading edge of residential security and much more.

What is your company’s approach in buying and selling accounts?

Mitch Clarke, vice president of Marketing and Business Development, Monitronics, Dallas: We are a large institution that purchases a lot of accounts. We have a dealer program that generates accounts, which we in turn monitor. Monitoring, billing, servicing the accounts that we purchase as a result of the dealer program--they all go together. We work with our dealers to ensure they sell to homeowners only and obtain down payments for service. We reward high credit scores as it is a leading indicator of long term, good paying customers. We will consider bulk buys if we can get comfortable with the aging of the accounts and how well they have performed over time.

Jennifer Holloway, director of Financial Services, Protection One, Wichita, Kan.: We just started an ad campaign to raise awareness that we are actually buying accounts. We are not a dealer program. We buy accounts from alarm companies on what you’d refer to as a bulk basis whereas other companies that have dealer programs buy them on an ongoing basis to new installations. When we buy accounts, Protection One is buying all the different parts of that account: the monitoring, service and customer service of that account.

What criteria you use when evaluating account(s)?

Clarke: We do focus on homeowners, good credit ratings, reasonable monthly rates and our strict criteria about professionally installed equipment. We survey and check installations, we speak with the customer to ensure that they understand the terms of the agreement and we only buy accounts where all these items align. If they don’t meet the test, we will contract monitor the account, but not purchase it. We have to be able to service and have a relationship with a dealer who is creating those accounts.

Holloway: From a Protection One standpoint on acquisitions, technology is absolutely something that we look at. When someone comes to us to sell us an account, we ask them: what kind of equipment are you using? Where are they monitored? How are these accounts programmed? Are they programmed to a colingual phone line or a clean phoneline? If they have older equipment that we can’t get parts for because it’s no longer produced, then that account is going to be worth less because the next time they have a problem where we have to go out and service, it’s likely going to require a new panel.

What are you seeing as far as trends or issues?

Clarke: What we see is more marketing spending by more dealers and dealer programs. People are more concerned about protecting their homes during a down economic period. Social media and Internet marketing is creating more buzz in the industry. We also see dealers beginning to try and differentiate themselves with forms of new technology. The adoption of interactive services is happening to where the security system doesn’t just stay at home, it goes with you, like alarm system applications for the iPhone or BlackBerry and we think that era of mobility will hopefully increase usage and will make a customer remember to use the system that they purchased more frequently.

Holloway: Smaller, mid-sized alarm companies that maybe were focused on the residential market find themselves in a situation where they’re not putting on as many new accounts and it’s harder for them to really run their business. If they can’t convert to a more balanced go-to-market approach then they’re likely in a tough spot and will need to sell. The other thing with our industry at this time is just a high number of retirees. What we’re seeing today is, there are more acquisitions because people are in a situation where they need money. They want to retire and just get out.