Buying in the Alarm Industry

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Buying in the Alarm Industry

• Barry Epstein
• President
• Vertex Capital
• bepstein4_at_sbcglobal.net
• 972-740-2740

SedonaOffice 2013 ? Vertex Capital
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Vertex Capital

• Advisory services specializing in the Life Safety
  sector
• Buy and sell side advisory services across the
  country
• Representation of all types of buyers local,
  regional, private equity backed, public
• Acquisitions throughout the Life Safety arena,
  including alarms, integrators, guards, fire/fire
  sprinkler, medical alert

SedonaOffice 2013 ? Vertex Capital
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Overview

• Why do acquisitions?
• Types of buyers and sellers in todays market
• What the seller needs to have and wants to know
• Ingredients of the letter of intent
• Financing the deal
• Looking at a sellers actual bids

SedonaOffice 2013 ? Vertex Capital
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WHY DO ACQUISITIONS?

• Faster growth
• More markets more of a referral base
• Pick up strong sales reps and techs
• Smoother revenue stream
• Replace attrition- buying an SDM 50 to stay even

SedonaOffice 2013 ? Vertex Capital
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A Snapshot of Buyers Today

• Local with 50k in mrr
• Regional with 600k in mrr
• National account buyer with 4mm in mrr
• National company buyer with 8mm in mrr

SedonaOffice 2013 ? Vertex Capital
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Number of bidders- currently increasing

• Relish contracted recurring revenue
• Good opportunity for growth through acquisition
• Low market penetration vs. other recurring
  revenue (TV, internet, phone)
• Very liquid market easy exit
• Lenders throwing money at large borrowers

SedonaOffice 2013 ? Vertex Capital
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A Snapshot of Sellers Today

• Dealer with 6,000 in mrr (contracts/mixed phone
  line)
• Dealer with 32,000 in mrr (good contracts, c
  corp)
• Dealer with 70k in mrr (valuation expectation)
• Dealer with 180k in mrr (offices, own central,
  kids in business)

SedonaOffice 2013 ? Vertex Capital
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What Every Seller Should Have

• Signed Contracts
• Own The Phone Lines
• Attrition Calculation (static pool)
• Financial Statements with Adjusted EBITDA
• Knowledge of Tax Implications
• Legal Representation
• Sell Side Representation (State to State)
• Multiple Offers

SedonaOffice 2013 ? Vertex Capital
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What The Seller Will Want to Know

• Whats the multiple?
• Does contract term matter?
• Is there a minimum MRR?
• Will the buyer keep my people? Rich man, poor men
• Do I have a shot at the holdback?
• Is the multiple the price or b/s items?
• Does the buyer have the money?

SedonaOffice 2013 ? Vertex Capital
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How to Find the Sellers

• If wholesale, let your customers know
• Put ad in state association newsletter
• Put the word out at the association meetings
• Dont assume he wont sell to you (2 old rams who
  hadnt spoken in 12 years)
• Look for orphans (Large buyers/small markets too
  much trouble)
• Build a pipeline (They may sell in 4 years)
• ASK CONNECTORS

SedonaOffice 2013 ? Vertex Capital
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Letter of intent

• Nonbinding
• Multiple
• Number of accounts
• Amount of recurring revenue
• LOI expiration date (ideally less than 4 years!)
• Freeze period
• Stock purchase vs asset purchase
• Accounts only or assets (a/r, inv, veh, fix,
  lease)

SedonaOffice 2013 ? Vertex Capital
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Math of Borrowing For A Transaction

• Buying 1,000 accounts at 25 per month 25,000
  in mrr.
• Purchase price is 33x, 10 held back for one
  year.
• 25,000 33x 825,000 .9 742,500.
• Bank lends 22x or 550,000. Buyer comes up with
  balance of 192,500 or puts up more mrr to the
  bank (33,700 total no cash upfront)

SedonaOffice 2013 ? Vertex Capital
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Forecast over next few years

• Attrition has settled down and will remain stable
  
• Number of buyers on increase as banks keep
  lending
• No killer app in sight to destroy monitoring
  revenue
• Utilities trying again to gain tremendous market
  share
• Multiples will remain strong as private equity
  firms have huge amounts of money on the sideline
  that must be put to use

SedonaOffice 2013 ? Vertex Capital