Security Sales & Integration May 2022 - 58

EXECUTIVE DECISIONS
Legal Briefi ng by Ken Kirschenbaum
Acquiring Alarm
Accounts Can Be
Risky Business
Part 2
My advice
would be
to buy the
accounts and
promptly
demand every
acquired
account sign a
new contract
and terminate
every customer
who won't
sign it.
Ken Kirschenbaum, an
SSI Industry Hall of Famer,
has been a recognized
counsel to the alarm industry
for 45 years and is
principal of Kirschenbaum
& Kirschenbaum, P.C.
(kirschenbaumesq.com).
The opinions expressed in
this column are not necessarily
those of SSI, and not
intended as legal advice.
58
▶ CONTINUED FROM LAST MONTH, the
next issue is whether you should buy contracts
from another alarm company when it doesn't
have trained techs or use proper, up-to-date
alarm contracts. Th e scenario could be described
as an accident waiting to happen. But the answer
isn't cut and dry because it depends on your tolerance
for risk.
You buy contracts from another alarm company
and own them upon closing. A loss occurs after
the closing; it's your loss, not the seller's. Turns
out the system defect was caused by the seller,
maybe during installation or a preclosing service
call. Yes, it's possible to have provisions in the acquisition
agreement that imposes the liability on
the seller, probably by way of indemnity. However,
it's not a provision I'd recommend my selling
client agree to and it's not something I would ask
for when representing the buying client. You will
see something like this only when the attorney is
not alarm industry knowledgeable or one who is
unreasonable (and also not alarm industry knowledgeable)
and hopes the other attorney is an idiot,
which unfortunately isn't that hard to fi nd.
So, when you buy the alarm contracts and
alarm accounts you will be responsible for the
systems after the closing. It's your insurance carrier
that will be defending the loss that occurs
after the closing. It's the contract you purchased
that both you and your insurance company will
be relying on to defend the case. If it's not a proper
contract you face risks.
What risks? Well, a claim that exceeds your insurance
coverage for one. Th at should be enough
to keep you up at night. Another risk, just to add
icing on the cake, a disclaimer by your carrier because
you don't have a proper contract, or more
likely, a notice of cancellation of the policy or nonrenewal
of the policy (though the carrier will fi nish
out the case). And while you're down, may as well
Security Sales & Integration MAY 2022
add another risk factor to your misery - a notice
from your central station that if you don't produce
a proper contract for every one of your monitored
accounts you must take your monitoring elsewhere
and you've got 10 days to take a hike.
Maybe you can fi nd an insurance carrier and
a central station with very high tolerance levels,
most likely represented by one of the attorneys I
described earlier.
But there is a positive side to buying the alarm
accounts and contracts (if there are contracts)
and that would be the price. Everything's got
a price. If your tolerance level for risk is high
enough and the price for the contracts is low
enough, you may have a deal. What are these
poorly contracted accounts worth? Well, nothing
if you have no tolerance for risk. But if you do,
then anywhere from 10x to 25x depending on a
bunch of other factors that make up the calculation
of the multiple. Why so low on the multiple
scale? Because my advice would be to buy the
accounts and promptly demand every acquired
account sign a new contract and terminate every
customer who won't sign it. What? Yes, you could
lose half or more of your monitoring accounts
(you could also lose your service and inspection
RMR customers). But if you lose half then your
calculation for the purchase changes from 20x to
50x multiple. Look at it that way.
All potential sellers better take notice of what's
above. I am talking about the equity in your
company, your likely selling price. If you're OK
with 10x to 25x so that the buyer can then go
out and make those accounts worth double, then
so be it. I can't stop you from banging your head
against the wall and I sure can't make you drink
the water. However, there is no reason for you
to be in this predicament because you still have
time to update your contracts so that when it's
time to sell you will be prepared to get top dollar,
top multiple for those contracts.
Use proper contracts and don't be the company
mentioned above who lost a potential buyer
because proper contracts aren't used.
securitysales.com
ken@kirschenbaumesq.com
ZERBOR/STOCK.ADOBE.COM
http://www.kirschenbaumesq.com http://www.securitysales.com
Security Sales & Integration May 2022

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