With all the focus on RMR, integrators are expressing frustration about why the market chooses to only place value on integration businesses with recurring revenue streams while ignoring other metrics.

Have the accountants got it all wrong after all? That’s a question some custom integrators are asking as they depressingly realize “outsiders” deem their long-term, highly successful businesses to be close to worthless from a valuation standpoint. Instead, the market is solely focused on “multiples” of recurring monthly revenue (RMR) from either service agreements or security monitoring contracts.How can a custom integration company with success in every area possible be worth squat? Are years of satisfied and repeat customers, profitable operations, a beautiful showroom, pristine vehicle fleet and consistent upgrades valueless? According to the pundits, it’s worth zippo…nada.

Several integrators recently vented about this issue to security legal expert Ken Kirschenbaum of Kirschenbaum & Kirschenbaum, and a columnist for CE Pro‘s sister publication Security Sales & Integration.

“Somewhere along the way, possibly with the introduction of ‘multiples,’ the buying and selling of alarm accounts became a big business,” notes Lee Hearn, president of Allegiant Security in Stuttgart, Ark. “I am not implying that there is anything wrong with selling one’s account base at generous multiples, but there are many in the industry whose sole purpose has become originating (or acquiring) as many accounts as possible in the shortest amount of time possible so that those accounts can be turned for a quick (and sizable) profit.  Again,nothing wrong with that if that’s your business model.  It’s a proven money-maker.”

Hearn frustratingly adds, “Unfortunately, many in the industry now think that’s the ONLY business model and that anyone who isn’t focused solely on building the number of RMR-generating accounts held is foolish. Call me a fool, then. I own a security integration business in which integration revenue accounts for roughly 85 percent of our business, with the remaining 15 percent consisting of alarm system installation and monitoring revenues. According to the experts in M&A who subscribe ONLY to the model in which the relentless focus on RMR acquisition is the Holy Grail, my business has little value.”

Read the full article on CE Pro

Article Published By Jason Knott of CE Pro, April 18, 2014

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