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Barry Epstein

Finance virtual roundtable: The most interesting deals of 2013 and predictions for 2014

Holloway, Epstein and Schmidt opine on valuations for alarm companies and integration firms, offer advice for sellers
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12/30/2013

Every January, Security Systems News asks security finance experts to share their opinions on deals done, valuations sought and won, and prospects for buyers and sellers in the coming year.

Henry Edmonds presents on PERS valuations

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Wednesday, October 9, 2013

As I encounter new theories and projections about PERS valuations, I continue to find a refreshing lack of uniformity among the experts. That’s not to say there aren’t areas of agreement. There are. Those watching the market often cite similar determinants of valuation, such as attrition rates, cash flow and the costs of creating new accounts. But experts seldom endow the same metrics with equal importance.     

For example, Barry Epstein, president of Dallas-based Vertex Capital, believes reducing attrition rates to be a critical component of increasing PERS valuations. Conversely, Mark Sandler, a principal with SPP Advisors, downplayed the importance of churn, saying instead that a company’s value hinges more on how efficiently they can redeploy their units.

Today I came across a presentation on PERS valuations delivered by Henry Edmonds, president of The Edmonds Group, at the Medical Alert Monitoring Association conference held last week in Orlando. Edmonds’ insights reflect another nuanced interpretation of the market. In the presentation, he boiled PERS valuations down to four key metrics: cash flow; churn (attrition rate); growth rate/new account volume; and creation cost.

Just as vital for maximizing value is the ability of dealers to compile solid data on these metrics, Edmonds noted in one of the slides.

Edmonds developed some pretty in-depth calculations that he believes dealers should be cognizant of. For instance, churn rate metrics should account for total lost RMR on a trailing 12-month or trailing six-month basis. That figure should then be divided by average outstanding RMR. With respect to the cash flow, Edmonds advises dealers to focus on adjusted EBITDA and steady state free cash flow.

Edmonds’ presentation also offered a trove of information about buyers. He noted that buyers will create finance models for target companies, develop key assumptions based on a target company’s past performance and determine a capital structure based on current market conditions.

Edmonds also provided the following aphorism: “Buyers never pay more than they think they have to.”

In the coming weeks I plan to speak with Henry Edmonds himself to get a more in-depth take on PERS valuations and the state of the market in general. Stay tuned.

PERS: What we know, what we don't

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Wednesday, September 18, 2013

The projected expansion of the PERS market will be fueled by several realities playing in its favor. First and foremost, the demographics, highlighted by an aging baby boomer population, are compatible with growth in the PERS space. Similarly, PERS devices make seniors better equipped to remain in their homes and possibly reap considerable cost savings. The market is relatively resilient. The technology is simple. One of the biggest barriers to entry may be tapping into the right marketing channel, Josh Garner, CEO of AvantGuard Monitoring Centers, told me in a conversation we had earlier this year on the state of the PERS industry. The marketing hurdle is not to be underestimated. But it also seems far less an obstacle than, say, mastering the technical ins and outs of a product truly difficult to integrate or install.

These are all PERS-relevant realities of which the industry already has a fairy sound understanding. While much is known, many questions still linger with respect to the future of the market. That much became clear in a recent conversation with Barry Epstein, president of Dallas-based Vertex Capital.

One question with many ramifications for the market: what will reduce the annual attrition rates for PERS devices? Will it simply come down to a broader (and younger) customer demographic? Metrics are far from perfect, and the market is still green from an acquisition standpoint, but Epstein says the attrition rate for PERS devices hovers somewhere between 24 and 36 percent. Even at the lower end of that spectrum, these rates are not conducive to huge RMR value, and they could make private equity firms leery about getting involved, at least right now. A huge ancillary question to the one posed above will be what kind of innovations, on either the dealer or manufacturer end, can companies make to reduce these less than sterling rates.

Another question: Can smaller alarm companies do PERS? Or is the market going to remain the province of larger dealers or wholesale monitoring companies who can afford to support a PERS-only division? To what extent will traditional alarm companies have a share in the space at all? Epstein, who recently moderated a panel at the PERS Summit in Park City, Utah, said the conference naturally featured an abundance of PERS dealers, but only a small fraction of them had alarm accounts.  

The development of this market will be worth watching closely. When will the acquisition tipping point occur? What will be the force behind it? What factors, as yet undeveloped, stand to drive the market’s upward trajectory? And what about mobile PERS units?

In a broad sense, we're mostly sure where the PERS industry is going. But regarding specifics, questions abound.

M&A and your company

PSA-TEC sessions look at measuring a company's growth and prospects for exiting this year
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05/23/2012

WESTMINSTER, Colo.—Thinking about selling your systems integration company this year? What kind of price can you expect for your business?