Deal experience in Security Monitoring Services

June 08, 2023

by a searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School in Cornelius, NC, USA

Hi everyone,

I had a broker share an expected multiple for selling off the recurring revenue of a Security Monitoring service and I wanted to pressure test. Does anyone have expected multiples they've seen for recurring revenue of a security business? (Alarm and video security not physical security)

I'm not under LOI with them yet but we're strongly evaluating making the offer. The broker stated they had an offer for $1.5m on ~500k in RMR from security monitoring so a 3x multiple (mix of residential and commercial). The RMR is a small portion of their revenue and this would be a carve-out from the existing installation business.

It's hard to pull out this nuance in the deal stats available here on Searchfunder so wanted to poll the community to find someone that has done deals in this space. Appreciate the help!

Reply by an investor
from University of Missouri in Austin, TX, USA

Hi Adam, I worked with a fairly large and well-known security company that provided equipment, install, and monitoring services. This was not at all viewed as a business that should trade off of RMR, rather good ole EBITDA. What I would warn you about on a business like this is really digging into the business model. Example, many of these businesses offer the equipment for free and charge a small installation fee, it is critical to understand how long each customer on average stays with the company and pays for the service. A massive issue you will see is the company spending tons of dollars on the equipment that doesn't end up paying off when customers leave before a certain time frame. You will end up seeing PF numbers shared with you that never actually come to fruition. The company first has to recoup the cost of the equipment before they generate a profit. If customer leaves before that time period where a reasonable profit is generated, the company is left with equipment installed in someone home where they made no money.

Hope that is helpful.

Josh

Reply by a professional
from Seton Hall University in Morristown, NJ 07960, USA

Hey ^redacted‌, Great to meet you. I owned an alarm business a few years back and I agree with a lot of what ^redacted‌ said in his comment. I'm not sure about your deal stats though. When I was involved market multiple on RMR was 24-30X. If you're being quoted 3X it sounds like that is not RMR (monthly), instead that sounds like something annual. During my day in the industry, I tracked it as we were buying###-###-#### years of revenue. The margins on the monitoring business is the attractive part - outsource monitoring and the margins could be as high at 80%. But make sure you understand any other obligations on the contract - especially service. If the seller is keeping the service part of the contract, you need to understand fully the operations of the business - especially the funds flows. Happy to have a further conversation, feel free to ping me at redacted Talk soon. RV

+7 more replies.

Join the discussion