Peak Business Valuation resides in an area that is known for security alarm companies. As such, we have assisted in the valuation of many security alarm companies.
The security alarm services industry is one of the most profitable industries I have come across. The sector has grown tremendously over the past ten years due in part to consumer spending and aging populations. In addition, consumers are more concerned about security than ever before, especially in residential areas.
With technological advances through wireless capabilities, it has never been easier for consumers to install and create a “smart home”. One example is the application Ring, which has provided flexibility and convenience for consumers to identify who is at their door. Now the company has expanded to provide monitoring services for inside and outside the house. Security systems are also becoming more financially accessible as tech progresses, allowing more consumers to become potential buyers.
In 2018, the industry expected to report approximately $25.3 billion in revenue with an annualized growth rate over the past five years around 5.2%. There are over 64,000 businesses across the US, one would expect there to be several transactions a year between interested buyers and sellers. Industry growth over the next five years is projected to be around 2.5% – 3.0% on an annualized basis, and profit margins average around 6.0%. With the expectation of higher growth, stable profit margins and an environment of increasing acquisitions, now is the perfect time to consider selling your security alarm business or purchasing a security alarm business.
The first step to selling your business or purchasing a business is to obtain a business valuation. Whether you are looking to sell or hold on to your company, understanding the market value of your business is important. A valuation specialist will show you a range of values for your business and consult with you on how to increase the value of your business.
Over the past five years, I have provided business valuations for several security alarm companies for various valuation purposes. To give you an idea of each of those engagements, I will list out some of the key factors used in valuing a security alarm company. Keep in mind that the factors listed below are only a guide.
Market Multiples for a Security Alarm Company in the $1 – $5 million in revenue
- Annual Revenue: 0.55x – 0.85x, including inventory
- EBITDA: 3.0x – 5.5x
- Seller’s Discretionary Earnings: 2.5x – 4.5x,
With a clearer understanding of what your business is worth, you can begin taking steps to increase the value of your company prior to a potential sell. I will touch on several ways in which you can increase the value of your business. In addition, the following information can also be used to value a company when looking to acquire. There are many factors to take into consideration, but this will provide you with the basis of what your company is worth and a few ideas to increase your company’s value. If you are searching for a more extensive valuation, reach out to a valuation professional like myself.
There are several success factors that help distinguish a security alarm company:
1. Compliance with Government Regulations
- Companies in this industry must comply with and understand government fire regulations in the installation and maintenance of alarm equipment. In addition to national regulations, many states also have specific regulations to comply with.
2. Effective Cost controls
- Given the overall low profit margins for operators in this industry, it is important to have effective cost controls in place.
3. Quick Adoption of New Technology
- With the rapid pace of technological advances security systems can become quickly outdated. It is advantageous to have access to the latest technology in fire and security systems. This is a key differentiator in maintaining and acquiring new consumers.
4. Ability to Vary Services to Suit Different Needs
- Different clients require varying levels of system complexity that are based on their needs and industry.
5. Technical Knowledge of the Product
- Systems providers must fully understand the capabilities and shortfalls of systems. With that knowledge, sales reps can sell more effectively and offer better solutions.
6. Ability to Compete on Tender
- Most large jobs are advertised through tenders, so being able to compete in this area is important.
Understanding the value of a security alarm company is important, regardless of any near future transactions. Even if you have not thought about selling your business or purchasing a business, it is never too early to start planning. The first step in that process is a business valuation, which we are happy to provide you with. We can also help to identify ways to increase the value of your business.