Re: Monitronics monitoring assigned to Apex

["R.H.Campbell" <rh.campbell@xxxxxxxxxxxxx>]

I've told two separate buyers when they approached me that I have no
intention of selling, either now or in the near forseeable future. That will
be a decision my son and I will make some time in the future. They offered
up some quite creative ways to buy the business - I was actually very
surprised. It was very much a "win win" situation. As for the rest of your
comments, I do see the business logic in what you say and I HAVE seriously
considered these points before. I didn't get into this business with my eyes
closed !  I made the decisions I have made with full knowledge of this
conventional logic when I wrote my business plan initially. But knowing
where the accounts will likely end up one day, I am not in the least bit
concerned.

BTW, for the record, there were no confidences broken when I learned of the
attrition rates I spoke of. Here in town, small dealers go in and out of
business like you and I change our underwear. It was during the course of
taking over a customer from a 10 account independant dealer that had gone
south (literally) for the winter, and who had left his accounts without any
service whatsoever, that I learned of this fact. I have been approached by
several other small dealers with a view to buying their accounts. But that
too doesn't fit within my business plan. Why would I buy accounts from a
small dealer who puts in poor quality troublesome installations (these
dealers anyway), and who doesn't have the "where with all" to know where he
is going in his business from the very beginning. My business partner owns
his own company with about 375 monitored accounts, and we have discussed
various options such as amalgamation, me buying him out etc, but nothing is
firmed up in that regard. His installs are superb, most of which were
actually installed by both he and I together when we actually worked for
each other in a mutually beneficial way. Whatever we decide to do, it will
be mutually beneficial to both of us....

As I slide further away from the actual installation and service end of
things, I'm working on a couple of other ideas that are somewhat unique and
potentially very profitable with several small high tech development
companies. At the moment, I'm not in a position to discuss this in a public
forum, but if it pans out, it could change the shape of current monitoring
quite drastically (actually, I had to sign non disclosure agreements with
both companies). If anything comes to be, a contract will mean very little
anymore - mine or yours. If it doesn't...well, I'm no further behind (and a
lot of these small high tech companies come and go like alarm
dealers...their "death" is in the implementation of an otherwise good idea)

So, to end this thread, if your concern about my business is genuine, I
thank you. If it's only to keep the thread going with a view to "winning"
your viewpoint, don't waste your time. As I've said many times before, you
do it your way, and I'll do it mine. End of story....

PS: You might tell Jim (Alarminex) that Dove soap is great to wash his mouth
out with....:))) I'd love to have a civilized conversation with him; we
share a lot of common feelings on gun control...

Regards,

RHC

"Nomen Nescio" <nobody@xxxxxxxxx> wrote in message
news:200cb6dfad22c5e6d7d41ce3a9d97e50@xxxxxxxxxxxx
> R.H.Campbell said:
>
>>If lack
>>of a long term contract is so bad, then my attrition rate should follow,
>>yet
>>it is one of the lowest rates on our station with over 300 dealers. In a
>>few
>>short years, my company has risen to become the 10th largest company here
>>in
>>town. I can sell my accounts for excellent value at the snap of a finger,
>>because they are all well installed and most have been with me for many
>>years. And our reputation in this business is sound !! Due diligence is
>>MUCH
>>more than the presence of a long term contract.
>
> First of all, I am surprised that you have the slightest idea of the
> attrition rate of the other 300 dealers monitored by your central.  I view
> that as confidential information, and I would be highly upset if my
> central
> was blabbing that information to my competitors.  Even though my attrition
> rate is quite low, it's the principle of the thing:  confidentiality.
>
> Getting back to your no-contract business model, let's assume for the sake
> of argument that everything you say is absolutely correct:  your customers
> all love you dearly and would stay with or without a contract, you don't
> have scumbags who want the freedom to throw you out at a moment's notice,
> and so on.  Even so, I think there are a few points you may not have
> considered.
>
> I'll assume that your business model works just fine for you now:  you're
> selling jobs, making money, and not losing accounts.  But what happens
> when
> it comes time to sell (and yes, sooner or later even the largest companies
> sell out)?
>
> As I recall, you have something over 500 accounts and are growing.  The
> bigger you get, the fewer the number of potential buyers, since fewer and
> fewer companies will have the cash, or be able to secure the financing, to
> pay your price.  In that respect, you are a victim of your own success.
> You will probably be limited to companies at least twice your size.
>
> The odds are great that your buyer will not take as good care of your
> accounts as you do.  After all, this is why you are currently taking
> accounts from them and not the other way around!  The buyer does not have
> any emotional stake in your accounts, since he knows none of them
> personally.  Since your buyer will be a bigger company, it's likely your
> accounts will be serviced by service techs you've never met, techs who may
> not be as knowledgeable or dedicated as your own.  The buyer may also move
> all your accounts to his own central station, rather than using yours,
> especially since a buyer big enough to buy your 1000+ accounts (by that
> time) may well operate his own central station.
>
> All of this translates into a higher attrition rate after the sale.  The
> buyer expects this, particularly if he's bought accounts before.  And it's
> something he will factor into the price he is willing to pay.
>
> Now, put yourself in the buyer's position, and think of what you're doing
> by buying RHC Security's accounts.  You're buying accounts that can cancel
> any time, for no reason.  You're buying accounts that are paying
> below-market monitoring rates (correct me if I'm wrong).  And, I seem to
> recall that you offer your accounts free maintenance and repairs with your
> monitoring.  The buyer is taking one hell of a big risk!  Specifically,
> he's betting that he can provide at least the same level of monitoring and
> maintenance and customer service that your accounts are receiving now, and
> still make enough money to pay you, cover his costs, and eventually turn a
> profit.  He probably won't dare raise the rates, since he would risk
> losing
> accounts in droves.
>
> And let's consider financing.  Even large buyers often do not like to use
> their own cash to buy accounts.   They'll use a bank or one of the alarm
> industry financiers and borrow some money against the accounts they're
> buying from you.  It might not be enough to cover all the cash, but it
> definitely helps.  Only in your case, I doubt a bank or finance company
> will loan much money against your accounts.  It would be like trying to
> borrow money against a signed contract that reads, "I promise to pay you
> $10,000 next month, if I feel like it."
>
> If you were a buyer, would you pay the same price for a bunch of "cancel
> anytime" accounts as you would pay for accounts that are contractually
> obligated to pay you for the next N years?
>
> Putting yourself in the position of a buyer, how do you protect yourself
> against this kind of exposure?  A lower multiple, a minimal attrition
> allowance, and a much bigger holdback -- that's what I would do.  You
> won't
> like the terms, but you can always look for another buyer...except there's
> that problem of not having very many buyers with enough cash in hand.  The
> buyers have the money, and if you want it, then for the most part, you
> will
> be dancing to their tune.
>
> - badenov
>