2007 SDM 100: Introducing the New SDM 100
This year â€” for the first time in its 17-year history â€” SDM 100 firms have been ranked by their recurring monthly revenue (RMR). RMR is the amount of contractually recurring revenues due from customers, for such services as monitoring, contracted service and system maintenance, and leasing of security systems. It is the revenue associated with the long-term agreement between an alarm company and its subscriber.
RMR is typically the basis for valuation of an alarm company. The amount of RMR, along with other factors, is assigned a multiple, such as 40 times RMR, to determine a firm’s value in an acquisition. RMR is the language of alarm company executives and is more meaningful in comparative analysis among industry peers.
In addition, basing the SDM 100 ranking on RMR helps to delineate the distinction between security alarm companies and security systems integrators. Many alarm companies operate in both markets and the line between markets is not as sharp as once drawn. But the fact is that most systems integrators tend not to have recurring revenue, whereas recurring revenue for alarm companies often comprises 50 percent or more of total annual revenue.
As always, the primary objective of the SDM 100 is to measure consumer dollars gained by alarm companies, in order to present an account of the size of the market captured by the 100 largest security providers.
How does the change in ranking criteria affect the make-up of the SDM 100 this year? First, it was not possible to measure the percentage of firms that improved or declined, because comparing growth in total annual revenue to growth in RMR would not be an accurate measurement. Second, and more importantly, as many as 14 previously ranked firms were not ranked this year, many because their RMR was not great enough.
For example, companies such as Ranger American, Firstline Security, and Defender Security (ranked No. 9, No. 26, and No. 36, respectively, in last year’s SDM 100 report) typically have high sales revenue, but routinely sell their subscriber contracts as part of an authorized dealer program, resulting in low RMR. Also a large part of these firms’ total revenue is from the sale of those contracts to another security firm. The new basis for ranking allows the SDM 100 to not include revenue that simply changes hands among alarm dealers and doesn’t come from the end-user market.
Other types of firms gain a significant amount of business from the sale of engineered systems, which typically don’t include a contract for recurring revenue. In this case, some of these firms have elected to report to SDM’s Top Systems Integrators Report, which will be published in July 2007.
In all, changing the report from a total revenue-based ranking to an RMR-based ranking this year has resulted in a difference of approximately $70 million less in total annual revenue that normally would have been counted in the SDM 100 totals, due to the loss of these firms on the report.
Aside from the new structure of the SDM 100, most firms did not report losses; in fact, many grew by double digits.
Per Mar Security Services, ranked No. 27, said the market overall in 2006 was much stronger than in 2005. “We experienced unusual growth in the installation of fire detection systems (a 45 percent increase)... and residential installation grew by nearly 50 percent.”
No. 7, Vector Security Inc., commented that “commercial markets continue to be strong, particularly in the CCTV business. One firm, Sonitrol Corp., ranked No. 9, reported that its video revenue alone was up 70 percent in 2006 over 2005.
Sonitrol of Sacramento & Sonitrol Orange County, ranked No. 41, acknowledged the impact of Homeland Security funding for keeping the market strong. “Cameras are still the hot product, with IP continuing to replace analog sales,” the dealer noted.
Said CPI Security Systems Inc., No. 19: “The market was stronger in ‘06 than ’05, and will be stronger still in ‘07. The commercial area represents great potential.”
SDM 100: 2006 Performance StatisticsThe table, to the right, presents aggregate figures for the SDM 100 group of companies, which, for the first time, are ranked by their recurring monthly revenue – an industry standard of valuation of a security monitoring business. Total annual revenues also are reported: In a $29.5 billion industry (2006 total industry revenues based on SDM’s January 2007 Forecast Study), these largest 100 firms captured $6.95 billion in total revenue – about 24 percent market share – and counted 11.3 million subscribers (customers). Most of the SDM 100 firms are privately held. Submitting recurring monthly revenue is required for ranking, but other figures are not required. Most firms – but not all – also reported their total annual revenue, number of subscribers, and installation volume. Therefore, one should exercise caution in using this information to extrapolate industry totals or to benchmark. (See Footnotes above, right for more detailed information.)
No. 3 – Protection One post merger (with IASG), trading symbol will be PONE on NASDAQ.
No. 4 – Monitronics Int’l – $280,000 RMR is from non-owned accounts.
No. 6 – HSM Electronic Protection Services Inc. was sold to Stanley Works for $545 million. SDM’s 2005 Dealer of the Year.
No. 7 – Vector Security Inc. – $54,000 RMR is from non-owned accounts. SDM’s 2003 Dealer of the Year.
No. 8 – Guardian Protection Services Inc. was SDM’s 1999 Dealer of the Year.
No. 10 – Bay Alarm Company was SDM’s 1998 Dealer of the Year.
No. 13 – Guardian Alarm Co. – $2,000 RMR is from non-owned accounts.
No. 14 – Interface Security Systems & The Greater Alarm Co. – $5,413 RMR is from non-owned accounts.
No. 16 – Central Security Group Inc. – $10,695 RMR is from non-owned accounts.
No. 17 – AFA Protective Systems Inc. – $46,000 is from non-owned accounts.
No. 19 – CPI Security Systems Inc. was SDM’s 2000 Dealer of the Year.
No. 20 – Alarm Detection Systems Inc. – $38,000 RMR is from non-owned accounts. SDM’s 1984 Dealer of the Year.
No. 23 – ADS Security’s third-party RMR is $56,000, none of which was included in stated RMR upon which this ranking is based.
No. 24 – Security Networks – $80,000 RMR is from non-owned accounts.
No. 28 – Kimberlite Corp. – Doing business as Sonitrol of NW Los Angeles/Ventura Co., Sonitrol of Bakersfield, Sonitrol of Fresno, Sonitrol of Modesto, Sonitrol of Stockton, Sonitrol of Oakland, Sonitrol of So. Alameda Co., Sonitrol of Berkeley/Richmond, Sonitrol of Contra Costa Co., Sonitrol of San Francisco, Sonitrol of Napa/Solano Cos., Sonitrol of Marin/Sonoma Cos.
No. 29 – General Security Inc. – $117,555 RMR is from non-owned accounts.
No. 31 – Mountain Alarm – $173,000 RMR is from non-owned accounts. SDM’s 1996 Dealer of the Year.
No. 32 – Alert Alarm of Hawaii – $19,636 RMR is from non-owned accounts. SDM’s 2006 Dealer of the Year.
No. 35 – First Alarm Security Services – Approximately 13.2% of revenue stems from Security and Patrol Div., as it directly relates to alarm company activity. Total company revenue for this period was $27.25 million.
No. 36 – Safeguard Security and Communications Inc. – SDM’s 2002 Dealer of the Year.
No. 37 – New York Merchants Protective Co. Inc. – $48,950 RMR is from non-owned accounts.
No. 45 – Doyle Security Systems Inc. – $28,365 RMR is from non-owned accounts. SDM’s 1997 Dealer of the Year.
No. 46 – Custom Security Systems – $203,022 RMR is from 33,803 non-owned accounts that are not included in subscriber totals.
No. 50 – Sonitrol Cascades – $100,523 RMR is from non-owned accounts.
No. 53 – Matson Alarm Co. Inc. – $500 RMR is from non-owned accounts.
No. 58 – F.E. Moran Inc. Alarm and Monitoring Services – $2,016 RMR is from non-owned accounts.
No. 59 – Blue Ridge Security Systems Inc. – $72,594 RMR is from non-owned accounts.
No. 62 – A-Com Protection Services Inc. – $37,776 RMR is from non-owned accounts.
No. 63 – Scarsdale Security Systems Inc. – $7,000 RMR is from non-owned accounts.
No. 64 – Electronix Systems Central Station Alarms Inc. – $68,000 RMR is from non-owned accounts.
No. 72 – World Wide Security/GC Alarm – $40,000 RMR is from non-owned accounts.
No. 73 – Richmond Alarm Co. – $72,438 RMR is from non-owned accounts.
No. 78 – Sentry Alarm Systems – $1,357 RMR is from non-owned accounts.
No. 81 – Security Systems of America – $6,193 RMR is from non-owned accounts.
No. 84 – Century Tel Security Systems Inc. – $2,679 RMR is from non-owned accounts.
No. 85 – Dehart Alarm Systems Inc. – $7,921 RMR is from non-owned accounts.
Sidebar: SDM 100 up & comers
Sidebar: 6% Growth in Dealersâ€™ RMRRecurring monthly revenue (RMR) – a prime revenue category for SDM 100 companies – improved 6 percent in 2006, but followed an 11 percent increase in 2005. Total RMR in 2006 was $409.6 million. RMR is derived from customer billing for services such as monitoring, contracted maintenance, and leasing of security systems. The figure usually is related directly to growth in customers, which in 2006 grew from 10.9 million to 11.3 million, about a 4 percent gain.
Sidebar: Fire Takes Larger Share in â€˜06Security alarm companies derive their revenue from a variety of product categories, including burglar alarm systems, which comprised 44 percent of dealers’ revenue in 2006. Many SDM 100 companies reported a noteworthy increase in fire protection system sales, up from 15 percent in 2005.
Sidebar: More than 11 Million Customers Served by SDM 100SDM 100 firms in aggregate have 11.3 million customers under contract, an improvement of nearly 4 percent from 2005 to 2006. Changing the SDM 100 basis of ranking from total annual revenue to recurring monthly revenue did not seem to significantly affect the outcome of the growth in subscriber accounts. The No. 1 firm, ADT Security Services, stands at approximately 6 million subscribers (estimated), while No. 2, Brink’s Home Security, reported 1.1 million, and No. 3, Protection One, reported just under 1 million customers.
Sidebar: SDM 100 Counts $6.9 Billion in Total RevenueThe SDM 100 grew their total annual revenue by almost 4 percent in 2006, reaching $6.95 billion. However, this is one figure whose results were changed significantly by changing the basis of the SDM 100 ranking from total annual revenue to recurring monthly revenue. As many as 14 previously ranked firms were not ranked this year (see text on page 50 for more details), because their RMR was not great enough. This resulted in a difference of about $70 million less in total annual revenue than normally would have been counted here.
Sidebar: Top 25 Ranked by Residential CustomersNote: Among the five largest security firms, two did not report their number of residential subscribers for 2006 – ADT Security Services Inc. and Protection One. (In 2004, ADT reported 4,251,332 residential subscribers.)
Source: 2007 SDM 100, SDM Magazine, May 2007
Sidebar: Top 25 Ranked by Non-Residential CustomersNote: Among the five largest security firms, two did not report their number of non-residential subscribers for 2006 – ADT Security Services Inc. and Protection One. (In 2004, ADT reported 946,456 non-residential subscribers.)
Source: 2007 SDM 100, SDM Magazine, May 2007