Lessons Learned: How I Built and Sold my Alarm Company
Glenn Barham recently retired as the president and owner of Alarm Monitoring Service of Atlanta (AMSA) after selling his company to Alarm Capital Alliance. Barham has more than three decades under his belt in the electronic security industry. Like many owners who decide to sell, he was concerned about the future of his company, employees and customers.
While the sale of AMSA was a success, not all owners have the same positive experience, in part because they are not prepared for the sale. Barham’s experience with Alarm Capital Alliance provides great lessons for owners considering the sale of some or all of their accounts, including how he decided the time was right to sell and the steps he took to prepare his business for sale, as well as his experience in the due diligence process.
Here’s his first-hand account of the building and selling process:
I started thinking seriously about retiring and selling my company, Alarm Monitoring Service of Atlanta (AMSA), in early 2012, but I didn’t have any plans to act right away. Our company was successful, as we had recently hit the 10,000-account mark. We had signed a new four-year lease on our new building six months earlier; still, I knew that I wanted to sell at some point. I had 36 years in the electronic security industry and had spent the last 17 years — since 1995 — owning, operating and growing AMSA. I was ready for a break — I have teenage boys and wanted to spend more time with them.
I envisioned selling as something that would happen at some point over the next few years and I started to think about what I wanted and needed from the sale. Because I had been thinking strategically about the eventual sale of AMSA, I was able to act quickly when the time and opportunity were right. Changes in the tax code that were about to go into effect at the beginning of 2013 made it advantageous for me to sell before the end of 2012, and the right buyer came along.
Lesson: Find the Right Buyer
Whether you are selling some of your accounts, or want to make a complete exit and sell your whole company, finding the right buyer is the key to making the acquisition process successful. The right buyer is different for every seller — it means more than simply finding someone willing to pay you the most for your accounts. There are many buyers and dozens of well-funded companies who would like to buy your base, and it is your job to find the right match. I experienced a lot of interest in my company, but I wasn’t really excited about the process or comfortable with the potential buyers until I found the one that understood and responded to my two main concerns: my customers and employees.
I founded AMSA because I believed that there was an opportunity to offer customers excellent service at a lower cost — I built the company on the premise that we always go the extra mile to keep a customer happy. Over 17 years, for thousands of our customers, I either sold them their system or dealt with them personally at some point in the process.
It was very important to me to sell to a buyer that would treat my customers the way that we always had, and that would maintain our culture of professionalism and excellent customer service. It was a huge sense of relief when I found a buyer that was committed to doing that.
I was equally concerned about my employees. In our industry, many purchasers only buy accounts, not whole companies. I grew AMSA from a small business with three employees (me, my secretary, and a technician) to a company with 20 dedicated and valuable employees —I didn’t want to sell the company at the expense of putting those 20 people out of work. Our business model is very successful, and our success and our reputation depend a great deal on the employees who are so committed to that success. It was very important to me that I sell to a company that not only wanted to buy my entire business and keep all of the employees in place, but that would also treat those employees fairly once I was gone.
Fairness, integrity, transparency, and professionalism were also very important to me and I did my own due diligence before selecting Alarm Capital Alliance. For me — and I think for most business owners — this is the transaction of a lifetime. We want to get it right the first time, because there probably won’t be a next one. I asked for at least three references from companies that had sold to ACA in the last year to two years, and I thoroughly vetted each one.
Lesson: Do Your Part to Create a Successful Business
We operated the business to ensure professionalism and customer service from day one. As we grew and hired employees, we trained them the same way. It is something I learned from my early days in the industry: do it right the first time. If you offer great service from the start, you will always have a steady stream of referrals from your base.
We had standard procedures for properly filling out contracts, for how our technicians installed and serviced systems, and how we kept our subscriber account records. We kept extremely detailed customer records, which not only allowed us to provide an excellent customer experience throughout the relationship, but also gave us in-depth information to monitor and manage attrition.
If you wait until you want to sell your accounts or your company to focus on attrition, you are too late. In our industry, it is simple — it is more expensive to create a new account than to save one. Along with the basic account information (name, premises, etc.), we also documented every detail of the account history for every account, including the reasons for any cancellations: the customer moved or went out of business, we cancelled them for non-payment, or on the rare occasion, they went to a competitor or cancelled because of a service issue.
Our record keeping not only helped us evaluate our accounts and our customer service efforts on an ongoing basis, it allowed us to provide detailed customer history for every account. One practice that worked well for us and that I highly recommend is maintaining a digital database of your records. We hired a document service that scanned all of our records and stored them online for us, and we scanned every account record going forward. Every piece of paper for every account was accessible by all employees through the document company’s software, so we could easily provide Alarm Capital Alliance with access to account histories online. Having that kind of account information gives you a great deal of credibility with your buyer and it takes the mystery out of what they are actually getting — which made this portion of the due diligence process painless for both parties.
Good billing and collections practices are also important. At AMSA, we did all our collections in house, and my advice is to aggressively pursue on collections. We sent letters and also called delinquent customers at 30, 60, and 90 days past due. On the 91st day, we would terminate the account for non-payment. I believe it is bad business to have accounts aged over 90 days, because it gives you a false representation of how many accounts you actually have.
The difference between a good transition and a bad one also depends on solid installation and central station practices. It goes right back to doing it right the first time. No matter what else you do, you must own the phone lines — the 800 numbers — so that you can swing the lines to a new central station. Otherwise, it is a time-consuming and expensive process to switch each account and it may reduce what a buyer is willing to pay for your accounts. At AMSA, we loved our central station provider and it was traumatic to think about changing. I was worried that we would lose hundreds of accounts, the phones would light up, and customers would be irate. In reality, it was a simple swing and ours went really well. Installing your subscribers’ systems correctly also allows you to download to the panel instead of making expensive and time-consuming site visits.
Lesson: Be Prepared for Due Diligence
Every purchaser will have a list of critical due diligence items and a process for completing the acquisition. I found that being prepared ahead of time made the process run much more smoothly. You cannot wait until you are in the middle of the deal to make sure your contracts are signed and your subscriber records are in order.
In our deal, we had a very comprehensive checklist of information that we needed to provide, including proof that we had contracts for every account (not just a sampling of accounts, but every account), accounts receivable aging reports, subscriber histories, employee records, just about everything that you would expect that you would keep records of in a security business. While it sounds like an intimidating amount of work, it is critical to establishing the value of your business for your purchaser.
Selling AMSA was a big adjustment for me, however, having the right partner made it more enjoyable. I stayed on with AMSA for 10 months during and after the transition, and naturally I was apprehensive about being an employee after 18 years of being in charge. It was a little tough to no longer be calling the shots when the time came, but Alarm Capital Alliance showed so much respect for my role in building the company and so much interest in my input into the future that I felt comfortable and very much appreciated in my new role.
With the right purchaser and good preparation, the process can be exciting rather than stressful.
