The North American Alarm industry is estimated to be a $66 billion market for 2021. The industry has 25% household penetration, serving 38 million of the 150 million households in the U.S. and Canada. Among businesses, the industry has 50% penetration, serving 3 million out of 6 million businesses.
Approximately half of the alarm industry’s revenue comes from recurring monitoring and service revenue (recurring monthly revenue or “RMR”) and the other half is generated by installation and other non-recurring revenue.
Attractive attributes of the residential security and home automation market include:
- Large and highly fragmented market
- Steady recurring revenue base with low attrition
- Low penetration (approximately 25% of homes have systems)
- Steady growth over many years as new technology and better products have driven increased industry penetration and higher ARPU
- New industry participants, increased industry sophistication and improved marketing are continuing to drive customer awareness, demand and increased penetration
The North American Alarm Industry is very fragmented with 10,000 to 15,000 local and regional providers. The top five companies combined on the 2022 SDM 100 annual listing of largest alarm companies (ADT, Vivint Smart Home, Brinks Home Security, Vector Security and Alert 360/My Alarm Center) control only 29% of the RMR. The 25th largest company has about $1.6M in RMR.
Alarm companies are in two distinct businesses – servicing existing customers and investing in (creating) new customers. Key metrics of the industry include:
- Cash flow (Adjusted EBITDA or Steady State Cash Flow (“SSCF”))
- Attrition rate (annualized)
- Creation cost (often expressed as a multiple of RMR created)
- Growth rate
There is an active secondary market for buying and selling alarm companies and alarm contracts. Hundreds of transactions occur each year. Larger buyers gain predictable and significant economies of scale by acquiring. Larger companies, if efficient, trade on multiples of seller cash flow. Smaller companies, or underperformers, trade on multiples of the buyer’s cash flow, often stated as a multiple of the RMR sold.
