How to Price My Alarm Company: EBITDA vs RMR

When assessing the value of a security alarm company, our philosophy at Acquisition & Funding Services is that the more information you can gather the better. Whether buying, selling, or growing a security company, accurate market valuations based on financial metrics such as Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) and Recurring Monthly Revenue (RMR) are critical.

Why EBITDA Valuations Are Important

EBITDA numbers are used to measure a company’s profitability relative to the competition in the industry. When evaluating a security company’s financials, this metric provides a bigger picture than looking at revenue or RMR alone. This is because EBITDA factors in more aspects of financial performance, which can be a better measure of profitability.

For potential buyers and investors, a higher EBITDA generally indicates a more profitable company and can spark a higher valuation. However, other factors such as growth prospects, market position, and industry trends also influence the valuation of the company.

At AFS, based on the recent deals we’ve worked on, EBITDA numbers have significantly impacted buyer interest in security companies. We’ve found that a strong EBITDA performance also attracts a wider range of potential buyers and investors, including private equity firms, strategic buyers, and individual investors.

How RMR Can Drive Up Value

When buying or selling a security company, the value essentially boils down to its profitability. RMR is a key financial metric in the security industry and refers to the revenue generated on a regular basis, typically monthly, from services or subscriptions that customers pay for on an ongoing basis.

Besides providing a steady revenue flow, RMR can boost a security firm’s business valuation. This is primarily because an RMR generates a predictable revenue stream. For example, when a current client adds cameras, updates technology, or extends a contract, the security company adds consistent revenue each month. The higher recurring revenue percentage, the higher your company’s valuation.

Consistent revenue streams, particularly RMR, are a good indicator of a successful business. At AFS, our recent business evaluations for deals have been in the 40-plus range for RMR. These high business valuations indicate a strong seller’s market, and the deals we’re currently working on backup this trend.

Should My Company Use EBITDA or RMR?

When evaluating a company’s financial performance and value, EBITDA gives you a more comprehensive picture than RMR alone. However, both EBITDA and RMR are essential metrics that buyers and sellers need to weigh when making any type of business transaction.

At AFS, our team relied on RMR a bit more heavily for business valuations in previous years. However, we’ve widened our perspective to include more of the metrics offered by EBITDA numbers. The basis for the change is because the buyers, sellers, and investors AFS works with want more data that accurately depicts past and future performance which can enhance valuations.

Experienced Brokers Can Maximize Profit

The best resource you can use to conduct a proper valuation of your security company is an experienced broker. Security firm sales are very different from the typical business sales that most lawyers or business consultants usually work on. At AFS, our team will help you factor in RMR, EBITDA, and other financial metrics to come up with a plan to sell a company for maximum profit.

In addition to accurately evaluating the value of your security business, AFS has the experience to find qualified buyers and work with you from the negotiation phase right through the closing of the deal. If you’re ready to gauge the value of your business and are considering a sale, contact AFS today to learn more about how we can leverage our industry knowledge and insight to ensure a smooth, profitable transaction.