Buying in the Alarm Industry

1. Buying in the Alarm Industry Barry Epstein President Vertex Capital bepstein4@sbcglobal.net 972-740-2740 SedonaOffice 2013  Vertex Capital

2. Vertex Capital • Advisory services specializing in the Life Safety sector • Buy and sell side advisory services across the country • Representation of all types of buyers: local, regional, private equity backed, public • Acquisitions throughout the Life Safety arena, including alarms, integrators, guards, fire/fire sprinkler, medical alert SedonaOffice 2013  Vertex Capital

3. Overview • Why do acquisitions? • Types of buyers and sellers in today’s market • What the seller needs to have and wants to know • Ingredients of the letter of intent • Financing the deal • Looking at a seller’s actual bids SedonaOffice 2013  Vertex Capital

4. WHY DO ACQUISITIONS? • Faster growth • More markets= more of a referral base • Pick up strong sales reps and techs • Smoother revenue stream • Replace attrition- buying an SDM 50 to stay even SedonaOffice 2013  Vertex Capital

5. A Snapshot of Buyers Today • Local with $50k in mrr • Regional with $600k in mrr • National account buyer with $4mm in mrr • National company buyer with $8mm in mrr SedonaOffice 2013  Vertex Capital

6. Number of bidders- currently increasing • Relish contracted recurring revenue • Good opportunity for growth through acquisition • Low market penetration vs. other recurring revenue (TV, internet, phone) • Very liquid market = easy exit • Lenders throwing money at large borrowers SedonaOffice 2013  Vertex Capital

7. A Snapshot of Sellers Today • Dealer with $6,000 in mrr (contracts/mixed phone line) • Dealer with $32,000 in mrr (good contracts, c corp) • Dealer with $70k in mrr (valuation expectation) • Dealer with $180k in mrr (offices, own central, kids in business) SedonaOffice 2013  Vertex Capital

8. What Every Seller Should Have • Signed Contracts • Own The Phone Lines • Attrition Calculation (static pool) • Financial Statements with Adjusted EBITDA • Knowledge of Tax Implications • Legal Representation • Sell Side Representation (State to State) • Multiple Offers SedonaOffice 2013  Vertex Capital

9. What The Seller Will Want to Know • What’s the multiple? • Does contract term matter? • Is there a minimum MRR? • Will the buyer keep my people? Rich man, poor men • Do I have a shot at the holdback? • Is the multiple the price or + b/s items? • Does the buyer have the money? SedonaOffice 2013  Vertex Capital

10. How to Find the Sellers • If wholesale, let your customers know • Put ad in state association newsletter • Put the word out at the association meetings • Don’t assume he won’t sell to you (2 old rams who hadn’t spoken in 12 years) • Look for orphans (Large buyers/small markets too much trouble) • Build a pipeline (They may sell in 4 years) • ASK CONNECTORS SedonaOffice 2013  Vertex Capital

11. Letter of intent • Nonbinding • Multiple • Number of accounts • Amount of recurring revenue • LOI expiration date (ideally less than 4 years!) • Freeze period • Stock purchase vs asset purchase • Accounts only or assets (a/r, inv, veh, fix, lease) SedonaOffice 2013  Vertex Capital

12. Math of Borrowing For A Transaction • Buying 1,000 accounts at $25 per month= $25,000 in mrr. • Purchase price is 33x, 10% held back for one year. • $25,000 * 33x = $825,000 * .9 = $742,500. • Bank lends 22x or $550,000. Buyer comes up with balance of $192,500 or puts up more mrr to the bank ($33,700 total= no cash upfront) SedonaOffice 2013  Vertex Capital

13. Forecast over next few years • Attrition has settled down and will remain stable • Number of buyers on increase as banks keep lending • No killer app in sight to destroy monitoring revenue • Utilities trying again to gain tremendous market share • Multiples will remain strong as private equity firms have huge amounts of money on the sideline that must be put to use SedonaOffice 2013  Vertex Capital