By: Jim Wooster, Jr., Alarm Financial Services, Inc.
This is the fourth article in our six-part series outlining the many aspects of making an acquisition and financing that acquisition using the recurring monthly revenue (“RMR”) accounts as collateral. The previous article was titled Conducting Due Diligence For an Acquisition.
With the purchase price negotiated and the due diligence completed, it’s time for the closing of the RMR account acquisition. While this is typically structured as an asset purchase, occasionally, it takes the form of a stock purchase. In either case, the buyer needs to find a way to pay. In the event the buyer has sufficient cash on hand to cover the purchase price, no financing may be sought.
For most acquisitions, however, the buyer relies on another party to provide the capital. This can come from an investor, from a lender, or perhaps the seller will agree to receive payment over time. The latter can be structured as an installment sale or, more commonly, seller financing. The aspect of not having to deal with a third party might be seen as a benefit. However, now the seller has just become the lender, and that may not be a relationship the buyer was expecting.
Raising money from an investor is another way to finance an acquisition, but borrowing money from a bank is more common. That bank might be a local bank where the alarm company already has a business relationship, or it may be through one of the specialty lenders that focuses on the alarm industry. In the case of an industry lender, the RMR accounts being purchased act as collateral for the loan. The additional benefit of financing an acquisition through a specialty lender is that they have participated in numerous alarm account acquisitions and can provide more than just capital. The lenders’ experiences have shown them what makes a successful transaction and what makes a transaction not so successful.
Leveraging this experience is just like leveraging the RMR accounts being purchased as collateral for the loan. Learn more about AFS and its loan services at www.alarmfunding.com, or contact Jim Wooster directly at 866-845-2678 x1200 or firstname.lastname@example.org.