Dealer Financing Programs Produce Profit
It’s an old axiom, but it holds up well. Money follows the security industry because the security industry delivers results. And while many things haven’t changed about how security dealers get financing, a few new trends are starting to emerge.
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.
Take a Deep Dive Into SDM’s Content
SDM is expanding its rich monthly content into a new video roundtable webinar series, “SDM Deep Dive Live — the business behind the stories,” hosted by John Hunepohl. This series will feature the same great content but with a deeper dive into interviews, content and videos. The series is free and live attendees have the ability to get their questions answered by the panel and earn continuing education credit and a certificate of completion. Register today for free at webinars.SDMmag.com.
Our first session, which takes place on June 21, digs into the 2017 SDM 100 report of the largest security dealers ranked by their RMR. The Deep Dive Live webinar will help attendees understand the value and objectives of the SDM 100 and how one can apply to be ranked on the report in 2018. Then we will go behind the numbers and talk to three SDM 100 ranked security dealers to learn about the efforts that went into their growth — as well as what they say holds them back.
Register for the June 21 premiere of SDM Deep Dive Live at webinars.SDMmag.com.