Stephen Olman, Colin Trimble·March 25, 2024

The Birth of a Roll-Up | Stephen and Collin Interview

Stephen Olman (consulting and SaaS background, one prior acquisition) and Colin Trimble (sales leadership at a cloud security-tech startup and Salesforce, plus small business ownership including a CrossFit gym) partnered to build an industry- and geography-specific roll-up thesis in security and fire alarm businesses across Texas, drawing on Colin's years selling into thousands of alarm dealers and watching owners exit at outsized multiples of recurring monitoring revenue (RMR). Their first acquisition, Alarm Masters, was a 35-year-old, second-generation Houston security/fire company sourced through a single phone call to a broker Colin already knew, bought for just over 1x revenue (about 3.5x SDE, roughly $700-750k SDE on a low-$2m-4m revenue business) via an SBA loan with no seller note and, notably, no holdback -- a risk they took to win a competitive process, betting that retaining the brand, staff, and technicians would keep attrition low. The episode is a detailed education on an idiosyncratic niche: valuations driven by 30-38x monthly RMR rather than EBITDA, 80-85% gross margins on monitoring revenue versus thinner margins on installation/service, state licensing as a real moat and risk, and the operational shock of running a technician-based field service business. Nine months in, they had already closed a small bolt-on add-on and were tracking toward a long-term goal of $1m in RMR, while learning firsthand how brand changes and owner departures drive customer churn even under a good playbook.

Deal facts

purchase price: Just over 1x revenue (roughly $2m-$2.5m)
multiple: About 3.5x SDE/EBITDA; industry-standard ~30-38x monthly recurring revenue (RMR)
sde ebitda: SDE/EBITDA margin about 25-27%, roughly $700k-$750k on ~$2m revenue
revenue: Topline revenue on the low end of a $2m-$4m range (business was around $2m-$2.5m)
financing structure: SBA loan (lender had to be educated on RMR-based industry valuation); no seller note; deal closed without a holdback (buyers chose to waive the customary 10-20% holdback to win a competitive/multiple-offer process)
notes: Business (Alarm Masters) was a 35-year-old, second-generation family-owned security/fire alarm company in Houston, TX. About 33-34% of revenue was recurring monitoring revenue (RMR) at time of purchase, carrying ~80-85% gross margins; installation/service work ran 25-50% gross margins. Add-on (bolt-on) acquisition closed ~9-10 months after platform deal, sub-$10k RMR, financed with creative financing including a holdback that extends longer than one year. Goal: grow to $1m RMR over a 7-10 year horizon; RMR was ~$80k and up ~37-38% in the ~8-9 months since acquiring, roughly 70% commercial / 30% residential mix.

Why this business

Colin spent years in sales roles inside the physical security/alarm industry (selling cloud-based access control and CRM/tech tools to alarm company owners, later at Salesforce), and repeatedly watched blue-collar, technician-founded alarm and fire businesses sell for surprisingly high valuations based on recurring monitoring revenue (RMR) multiples rather than SDE/EBITDA. He and Stephen (a digital-marketing/consulting background operator who had already done one acquisition) had been running a fractional sales/marketing consultancy for security companies and realized they could apply the same sales and marketing playbook as owner-operators instead of consultants. They developed an industry and geographic thesis to roll up small, fragmented, 'hyper-local' security and fire alarm businesses across Texas, starting in Houston, targeting the segment between mom-and-pop hyper-locals and PE-backed regional/national roll-ups.

What's working

Recurring monitoring revenue (RMR) carries 80-85% gross margins and is valued by the industry on a multiple-of-RMR basis (30-38x monthly RMR) rather than EBITDA, creating an arbitrage opportunity for buyers who understand both languages
Buyers who keep the existing brand, staff, and technicians (rather than stripping the brand as typical roll-ups do) retain far more RMR/customers post-close
Proactive, hands-on customer retention: personally calling/texting every customer who tries to cancel to understand why and win them back, which cut attrition dramatically (kept ~3/4 of would-be cancellations)
State licensing requirements (company-level and technician-level fire/security licenses, 2-year experience requirement, low exam pass rate) create a real barrier to entry/moat
Non-discretionary nature of the purchase (life-safety, fire marshal-mandated inspections) makes the business recession-resistant; the business grew even through COVID
Strong existing technician base able to service and repair legacy alarm panels that competitors can't/won't service, creating inbound demand from non-customers needing repairs
Commercial customers are stickier and less prone to disruption than residential; company is intentionally skewing toward commercial (about 70% commercial at time of interview)
Attaching recurring revenue (RMR) to every new install, including ancillary lines like access control and cameras, rather than selling them as one-time installs as the prior owner did
Doing bolt-on acquisitions small first (sub-$10k RMR) to build a repeatable playbook before attempting larger add-ons
Partnering (50/50 equity) with a partner with complementary skills reduces risk versus going solo

What's hard

Sellers and brokers in this industry price and discuss deals purely in RMR/monthly-revenue multiples, not SDE/EBITDA, requiring buyers (and their SBA lender) to be educated on how to translate between the two
Waiving the customary holdback (10-20% of purchase price held back for a year against attrition) to win a competitive multi-offer deal was a real risk, even though it worked out
Rebranding an acquired book of business (as with their first add-on) still caused 20-30% of customers to be confused or frustrated despite outreach in four different channels; removing the familiar owner/technician relationship causes real churn no matter how well it's handled (e.g., losing a customer who had been informally bartering tires for monitoring)
Finding and retaining qualified service technicians is difficult industry-wide; technicians skew older and there's a shrinking pipeline of younger workers willing to do the work, prompting the company to explore veteran-hiring programs and community college trade partnerships
Transitioning from a finance/sales background to running a field-service business with trucks, route optimization, and inventory stocking decisions was much harder than expected; understanding technician and customer perspective (how long a service call should legitimately take, human relationships in customers' homes) required real humility and time
Licensing is a real compliance risk: losing the required state license (tied to a primary company representative's experience/exam) at time of renewal is possible if not diligenced properly, and if that licensed employee leaves, the company has only 60 days to find a replacement
Some contracts had weak terms (month-to-month, no transferability or price-escalation clauses), increasing churn risk on acquisition

Notable quotes

You won't even see a net income or earnings or SDE or EBITDA number in a CIM in this industry. It's not there. You have to do that work after the fact.

We're buying on a multiple of RMR with really great gross margins, so it was very attractive. That's when I got really excited and interested.

I would say do your due diligence like you always would, but do a different set of due diligence... it would be so important to go have a conversation with some owners even if you're not playing to buy them.

Every single customer that had called to cancel from the day that we purchased the business, I have personally called, texted and sent a message to, at the very least. I want to understand why.