Industry Description
The security alarm services industry in the U.S. comprises sellers of burglar alarms, fire detection equipment, and locking mechanisms, along with providing installation, maintenance, and monitoring services (NAICS 56162). Locksmith services fall within this industry, but they represent a minor revenue component and so are not considered a core segment.
The following are some basic characteristics of the security alarm services industry:
- Security alarm services industry has a combined revenue of $27.4 billion, with a growth rate of 1.7% in 2019-2024
- There are approximately 31,400 businesses as of 2024
- The security alarm services industry employs approximately 159,400 people
Industry Trends
The security alarm services industry is highly fragmented and has low levels of market share concentration, with the top four industry operators comprising approximately 27% of industry revenue in 2019. The largest players have more than 20 employees, while small players have less than 20 employees. Some key external factors that influence this industry are (i) technological advances, (ii) increasing disposable income, and (iii) property crime rates. Each of these is described in further detail below.
Technological advances such as home automation and telemonitoring have increased industry demand. These advancements enable users to change alarm settings, control locks, and monitor cameras through handheld devices. Facial identification has already been employed with Taylor Swift, first employing face recognition during her concerts in 2018. The device was installed near a ticket counter and has been adopted by concerts over time, and this adoption has begun in smart home security systems too.
Increasing disposable income has made the industry more affordable for households and businesses. Per capita disposable income grew at an average of 6% per year between 2019 and 2024, enabling more consumers to invest in security. The residential sector has expanded due to rising housing starts and renovation projects which often incorporate advanced home security systems. This trend has already begun to spill into other sectors such as small businesses and high-end consumers.
Property crime rates, which include burglary or trespassing, motor vehicle theft, and other types of household theft, ensure there is continued industry demand. The property crime rate increased from 101.9 per 1,000 households in 2022 to 102.2 per 1,000 households in 2023. The rates are even higher in urban areas where rates are 176.1 per 1,000 households in 2022 and 192.3 per 1,000 in 2023. These rates mean residents have begun to invest in security measures out of both precaution and necessity.
The security alarm services industry in the U.S. has been influenced by external factors such as technological advances, increasing disposable income, and property crime rate. Rising disposable income and persistent property crime rates have created a large market of consumers who are able and willing to purchase technologically advanced security systems. Companies can capture industry demand with integrated smart home and remote monitoring solutions to an expanding residential and business client base.
Key Performance Metrics
In evaluating the security alarm services industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Alarm installation time
- Alarm response time
- Alarm utilization rate
- False alarm rate
- Recurring monthly revenue
- Recurring monthly revenue multiple
Industry Organizations & Publications
The following organizations publish useful information:
- ASIS International
- Electronic Security Association (ESA)
- Security Industry Association (SIA)
- The Monitoring Association (TMA)
Guideline Information: Private Purchase Transactions
Most security alarm services companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held security alarm services companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of security alarm services companies:
- Revenue multiples between 0.3 and 2.9 times
- Gross Profit multiples between 0.5 and 4.8 times
- EBITDA multiples between 2.8 and 10.8 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most security alarm services companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The four largest publicly traded U.S. security alarm services ranked by market capitalization are:
- ADT Inc. (ADT) – $7.0 billion market capitalization
- MSA Safety Incorporated (MSA) – $6.6 billion market capitalization
- Brady Corporation (BRC) – $3.2 billion market capitalization
- Alarm.com Holdings, Inc. (ALRM) – $2.9 billion market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 14.3 times and 24.3 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Security alarm services companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.