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Selling Accounts
August 22, 2013
Confidential Presentation prepared for Recipients use only. Not to be relied upon, forwarded or duplicated without consent of The Edmonds Group, LLC.
Summary
Introduction Valuation Drivers Valuations and Recent M&A Deals Holding vs. Selling Accounts and Capital
Markets Q&A
INTRODUCTION
Henry Edmonds
Over 28 years of capital markets experience
Started The Edmonds Group in 2004 Co-Founder (1990) and CEO of SLP Capital (thru 2004)
Largest lender to alarm industry when sold to CapitalSource in 2004 Over $400M of alarm loans $2B in transactions in the airline industry
MBA, Harvard Business School BS, with distinction, civil engineering, University of
Virginia
VALUATION DRIVERS
Dealers must have the ability to provide good data on these metrics if they are going to maximize value!
Attrition rate
Total lost RMR on a TTM or trailing 6 mo basis divided by average RMR outstanding Canceled and change in over 90 days Total direct and indirect cost associated with new account creation, less upfront revenue, divided by newly created RMR Net Creation Cost before allocation of corp. overhead Gross Creation Cost after allocating corp. overhead Not relevant in bulk account sale
Growth rate
Term Organization
Contract form
Billing profile
Valuation Ranges
Not every company or account base is created equal How does your companys performance across key
metrics compare with others? If you have strong metrics, get a valuation at the high end of the range Poor metrics, low valuation Large alarm companies trade at 10x to 13x SSCF Smaller companies trade at 30x to 50x RMR
economies of scale by acquiring Large transactions ($500k+ in RMR) trade on multiples of seller cash flow Smaller transactions trade on buyers cash flow not sellers
Assumes: Auto-Debit Three Year Agreement Actual cash to dealer typically 10% less based on holdback
Notes: Dealer and bulk sales typically have holdbacks (10%+) for account guarantees Company sales typically do not
$3.6 $8.8
41x 58x
Norwest Venture ACA Partners Monitronics Blackstone Group Protection 1 Pinnacle Vivint Vintage Security
Disadvantages
Buyer has a lot of control Typically no capital commitment Terms/availability can change Holdbacks/ account
needs
guarantees Not creating track record of servicing/retaining accounts Little control of data and/or account performance
Holding Accounts
Advantages
Control of accounts
Disadvantages
Who you sell to What products you sell What you charge How the customers are serviced and treated
Significant capital
required Responsible for long term customer performance Need full infrastructure
Debt Markets
Lots of experience alarm lenders However, most industry lenders require a minimum
deal size of $5 million to $10 million Local/regional banks will lend smaller amounts
Senior Debt lending 18-24x RMR Stretch Senior multiples 26-28x RMR Subordinated debt up to 30x RMR
Private Equity
Over 2,000 private equity firms in the US Firms come in all sizes Over $500 billion in money to spend Many more PE firms interested in the alarm industry Industry performed well through 2008/2009 recession Viewed as safe harbor with good upside potential However, require positive EBITDA and a certain size Most want EBITDA $1M+ Need to invest at least $2M+ Dealer probably needs to own at least $500k in RMR
pre-revenue companies Typically looking for companies that have a unique product or service and potential for exponential growth
Public markets well suited for alarm companies Few alarm companies big enough (very expensive to be public company/need minimum market capitalization $500M+) Markets dont really understand alarm industry accounting
firm reaches a certain size/scale Dealer programs/selling accounts are a great way to develop a track record
Transition through a hybrid approach Sell some accounts, hold the rest Holding accounts/becoming a full service alarm
Contact Information
Henry Edmonds The Edmonds Group, LLC 16 Lenox Place St. Louis, MO 63108 Ph: 314.422.4649 Email: hedmonds@theedmondsgroup.com Website: www.theedmondsgroup.com Facebook: www.facebook.com/TheEdmondsGroup Twitter: TheEdmondsGroup