Security Alarm Business Valuation Checklist (Australia)

Security Alarm Business Valuation Checklist (Australia)

Work through each phase before making an offer. Tick when verified, not when you've been told.

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Phase 1: Revenue Structure and Quality

Understanding the revenue mix is the single most important step in valuing a security alarm business. Do this before you look at the P&L.

• Obtain a revenue breakdown by type: installation, alarm monitoring, CCTV monitoring, access control, maintenance/service agreements, and ad-hoc call-outs
• Calculate the percentage of total revenue that is recurring (monitoring + maintenance agreements vs one-off installation)
• Identify total monthly recurring revenue (MRR) — add up all monitoring and maintenance contracts currently active
• Confirm MRR against bank statements or monitoring software reports (do not rely on seller's summary alone)
• Request a list of all active monitoring contracts with: customer name, contract start date, contract end date, monthly fee, and contract type (residential/commercial)
• Check what percentage of monitoring contracts have defined terms (12 months or longer) vs month-to-month
• Calculate the weighted average remaining contract life across the monitoring book
• Identify the top 10 monitoring customers by revenue and calculate their combined share — flag if any single customer represents more than 15% of MRR
• Request churn data for the past 3 years: how many monitoring contracts were cancelled or not renewed annually
• Calculate annual churn rate: cancelled contracts divided by total contracts at start of period
• Confirm whether monitoring fees have been increased in the past 3 years — stale pricing can indicate either loyalty risk or a pricing opportunity
• Identify whether commercial or residential monitoring contracts have different churn profiles (commercial typically churns less)

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Phase 2: EBITDA Normalisation

Security businesses have several common add-backs and adjustments that are easy to miss.

• Obtain profit and loss statements for the past 3 financial years (ideally with accountant-prepared figures, not management accounts only)
• Identify the owner's salary and any superannuation — add back to EBITDA if the owner will not be retained post-acquisition
• Identify wages paid to family members — add back any above-market wages; deduct any below-market wages (you'll need to replace the labour)
• Identify personal expenses run through the business: vehicles used privately, phone/internet with personal component, travel, entertainment
• Check for any non-recurring expenses in the P&L: legal disputes, unusual repairs, one-off equipment purchases — add these back with documentation
• Identify the monitoring centre software subscription cost (if the business runs its own monitoring) — verify this is at arm's length pricing
• Check whether the business uses a third-party monitoring centre — confirm the contract terms and whether pricing is fixed or volume-based
• Identify any related-party transactions: rent paid to a related entity, vehicles leased from the owner, software licensed from a connected party
• Calculate normalised EBITDA for each of the 3 years — look for consistency or a trend worth understanding
• Determine whether to use a 3-year average or the most recent year as the valuation base (use 3-year average if there's volatility; most recent year if there's a clear upward trend with evidence)

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Phase 3: Licence Verification

This is where security business acquisitions go wrong most often, and almost always because buyers didn't check early enough.

• Obtain a complete list of all security industry licences held — include licence number, issuing state, licence type, expiry date, and holder (company vs individual)
• Confirm which licences are held by the company entity vs the individual owner personally — note that a Master Licence in most states is held personally, not by the company
• Check licence status for each state of operation: NSW (Security Industry Act), VIC (Private Security Act), QLD (Security Providers Act), WA (Security and Related Activities Act), SA (Security and Investigation Industry Act), other states as applicable
• Confirm whether the Master Licence (or equivalent) can transfer to the new owner or whether a fresh application is required — this varies by state
• Estimate the timeline for licence transfer or new application in each relevant state — this directly affects settlement structure
• Verify individual technician licences for all field staff — confirm each is current and covers the work type performed (installation, monitoring, patrol if applicable)
• Check whether any licences are under review, suspended, or have had conditions imposed
• Confirm ASIAL (Australian Security Industry Association Limited) membership status and any ASIAL-accredited grade — note that some commercial and government contracts require ASIAL accreditation
• Identify whether any contracts with customers specifically name the owner or a named licence holder — these may need novation or renegotiation
• Confirm that all employees performing licensed work hold current individual licences (an employer is responsible for ensuring this compliance)

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Phase 4: Technology and Equipment Assessment

Technology age and type have a direct impact on both current value and future capital expenditure requirements.

• Identify the split between analog and IP-based systems in the monitoring and installation portfolio
• Determine the approximate average age of installed customer equipment — systems over 10 years old are likely approaching replacement
• Assess the monitoring centre infrastructure: software platform, server age, communication protocols (2G, 3G, 4G — note that 2G and 3G networks have been or are being decommissioned in Australia, which forces hardware upgrades)
• Identify any customers still on 2G or 3G communicators — these require hardware replacement funded by either the customer or the business; clarify who bears the cost
• Review the vehicle fleet: number, age, registration status, maintenance history — calculate approximate replacement value and near-term capex requirements
• Assess tools and test equipment: completeness, age, and condition
• Identify whether the business has remote diagnostics capability for installed systems — this affects service efficiency and scalability
• Check software licences for any monitoring or job management software — confirm these transfer with the business or can be re-licensed to the new owner

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Phase 5: Key Person Risk

The security industry has above-average key person risk because relationships, licences, and technical knowledge are often concentrated in the owner.

• Map which customer relationships are held primarily by the owner vs the team — ask customers which staff member they would call in an emergency
• Identify which technical capabilities exist only in the owner (e.g., specific system types, high-security commercial accounts requiring specialist clearances)
• Confirm whether any contracts specifically reference the owner by name or require continuity of a named individual
• Assess whether the current team (without the owner) could operate the business for 90 days without significant revenue loss
• Review staff qualifications, tenure, and any non-compete or restraint clauses in employment contracts
• Confirm staff awareness of the sale — have any key technicians been informed, and if so, what their response has been
• Identify whether the owner holds any security clearances (government clients) that the business depends on and that cannot easily transfer

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Phase 6: Transition and Post-Acquisition Considerations

• Agree on a transition period with the vendor — for licence transfer purposes, 3 to 6 months is often necessary; structure this carefully (the vendor should not remain as a responsible manager indefinitely without clear milestones)
• Confirm which entity holds each monitoring contract — if contracts are with the owner personally rather than the company, they require novation, which takes time and sometimes customer consent
• Confirm the monitoring centre arrangement: does it stay with the business, or does it need to be established, relocated, or migrated to a new platform?
• Check whether the acquisition is structured as an asset purchase or a share purchase — share purchases retain licences in the company; asset purchases may require new licence applications
• Identify any insurance policies that need to be replaced: professional indemnity, public liability, contractor licences insurance
• Confirm supplier relationships: alarm panel suppliers, monitoring equipment suppliers, central station software providers — check for volume pricing that may not transfer at the same terms
• Identify any outstanding warranty claims or customer disputes that transfer with the business
• Check whether the business has been audited by any customers, particularly government or strata management clients — request the most recent audit report if applicable

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Phase 7: Offer Pricing Sanity Check

Before finalising your offer:

• Calculate the monitoring book value: total MRR multiplied by your chosen multiple (12x to 24x based on contract quality and churn)
• Calculate normalised EBITDA value: average or most recent year normalised EBITDA multiplied by your chosen multiple (2x to 4x based on risk profile)
• Add the two components to arrive at a total indicative value
• Verify total against comparable sales (use Benchmark Business, BizBuySell Australia, or a business broker for market comparables)
• Calculate your required return: what does the business need to generate in Year 1 post-normalisation costs to service any debt and provide an acceptable return on equity?
• Stress-test the monitoring book: if 20% of monitoring customers leave in Year 1 (possible if the business is heavily owner-dependent), does the business still generate acceptable returns?
• Consider whether the offer should be conditional on licence transfer — in some structures, a portion of the purchase price is held in trust pending successful licence transfer
• Reference the industry multiples cheat sheet to confirm your multiple is within market range

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Related resources:

• How Much Is a Security Alarm Business Worth in Australia? — the valuation framework that underpins this checklist
• Due Diligence Checklist — covers financial, legal and tax verification applicable to all business purchases
• Industry Multiples Cheat Sheet — EBITDA multiples across 20+ trade categories

This checklist is part of Module 4 (Valuation and Pricing) of the Playbook.