In this month’s feature article, “Financial Services: What’s Changed, What Hasn’t,” author Joan Engebretson focuses on some financing facts that are well known to security dealers  as well as some lesser known facts, such as that interest rates are expected to increase soon.

The article, which begins on page 52, also reveals some trends. One is that dealer programs may become a much more relied upon business model for dealers. Dealer programs offer a formalized means for the program operator to purchase monitoring contracts from security installing companies on a regular basis. The program operator pays the dealer a multiple of the RMR and in exchange, gets the RMR. Dealers may sell accounts on a regular basis or only once in a while.

Rory Russell, owner of Acquisition and Funding Services, sees the flexibility of dealer programs as something that’s becoming very appealing to a certain demographic. As the large baby boom generation reaches retirement age, Russell is seeing boomer dealers selling a portion of total accounts as a means of easing into retirement.

Another trend is the increasing interest of private equity firms in the industry. “The alarm industry fared very well during and after the financial crisis of 2008 to 2009,” said Henry Edmonds of The Edmond Group LLC, in the article. And that generated increased interest in the security market on the part of private equity firms — investors that seek to own a controlling interest in larger security dealers. Interest in these larger companies has been so strong that private equity firms now own just over half of the 20 largest alarm companies, according to The Edmonds Group.

To be exact, 68 percent of the top 25 alarm companies in the security alarm industry are backed by private equity investors, wrote John Mack and Michael Barnes in “New Challenges to Creating Value,” which is posted at: www.SDMmag.com/2017-SDM-100-Report.

Edmonds noted that once a private equity firm has invested in one major platform company, management may then buy smaller dealers and roll the operations of the smaller dealers into the main company — a clear opportunity for the better-managed dealers of the industry.

If you follow the money you’ll see that the RMR-centric model is more than 25 years old and the industry has more than $1 billion of RMR in the U.S., according to Mack and Barnes. Most of the capital used to originate this has yielded attractive returns, which is one of the principal reasons highly sophisticated private equity investors are so interested in this industry.

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