Is Now a Good Time to Sell a Security Alarm Business?

When owners of security alarm companies consider selling all or part of their business, they need to have a good grasp on current market conditions, valuations, industry trends, and how deals are being successfully brokered.

At AFS, we have our finger on the pulse of the security industry because we’re consistently working on transactions for buyers and sellers. What we’ve seen in this market as we near the midpoint of 2024 are very encouraging signs for individuals who are selling successful companies.

Private Equity Funding is Flowing

According to AFS President Rory Russell, it’s a great time to sell your security business.

“There’s a plethora of money out there right now, in private equity especially,” he said, “Interest rates are a little higher, but it really hasn’t really affected the market.”

Russell noted that he’s seeing many people coming in looking for deals who are working for private equity.

“I have several new buyers in the market for security, fire, and integration companies,” he said. “There are also different ones out there — private equity buyers who want fire, security, or integration companies and some who are looking to buy all three because they want that one-stop shop.”

What are Buyers Looking For?

Russell noted that what he thinks people in the industry have overlooked this year is that everyone has been focused on buying based solely on recurring monthly revenue (RMR).

“What we need to start looking at is making sure the company makes money. If you’ve got $30,000 RMR, people think a firm should be worth a specific amount of money,” he said. “That’s not necessarily true. If you can show me your company is profitable and has other revenue sources such as service or test and inspection, that all adds more value.”

Russell added that he advises sellers to make sure that their companies not only have solid RMR, but also a steady cash flow.

“If you have both of these attributes, you’re going to get top dollar when a company sells,” he said.

Holdbacks are Becoming Less Common

In the security industry, holdbacks have traditionally been a routine aspect of a company sale. Most offers include a cash element to the seller at closing where a certain amount of money is held back as an insurance policy. Normally the holdback amount will be deducted for loss of revenue unless it results from the buyer’s actions.

Russell explained that the market for sellers is currently so strong that holdbacks are much less common.

“I’m finding that for most of the deals we’re closing, there are actually no holdbacks being requested,” he said. “If you have the right company and right ingredients there are no holdbacks.”

Security Company Valuations are High

High business valuations are a key indicator of a strong seller’s market. One of the chief metrics AFS looks at in terms of valuation is the Rule of 40. This means a company’s growth rate and profit margin should equal or exceed 40 percent over a 12-month period. Companies at or above this number are generating sustainable profit.

“The deals we’re currently working on are high in valuation,” said Russell, “We’re getting into low 40s on RMR supported with profit.”

Ready to Sell? Work with AFS to Maximize Profit

At AFS, we guide clients selling their security firms through the process by helping them prepare their business for sale, providing qualified buyers, and assisting with the negotiations. Our decades of experience in the security industry make us the ideal broker to have on your team because we have the resources and expertise to sell your company quickly for a substantial profit. If you’re considering selling your business, contact Rory today to discuss how AFS can collaborate with you to ensure the sale runs smoothly and meets your goals.