This could have a dramatic negative effect on the owners of these corporations as they operate the company; and on the net proceeds from an eventual sale of the operating assets.

Here’s the story:

According to the "S" Corporation Association of America, about 70 % of corporations in the US have elected "S" corporation status. "S" corporations have the same advantages as traditional "C" corporations, as far as limited liability is concerned, except "S" corporations do not pay tax at the corporate level. Instead, the tax on the earnings of the "S" corporation is imposed on the shareholders – prorated based on ownership percentages.

The purpose of making the "S" status available was to give relief to the small business owners by not taxing them in the same way the large corporations were taxed. Some of the advantages of the "S" status over the conventional "C" corporations were:

1. To obtain the limited liability protection from corporate status, while retaining a partnership type of taxation.
2. To avoid the general double tax system of "C" corporations
3. To reduce the overall income tax expense, by taxing income at a lower rate at the individual level (when applicable), than at the corporate level. Although the changes in the corporate level tax brackets over the years have sometimes resulted in lower taxes paid by traditional "C" corporations.
4. To avoid the additional tax imposed at the "C" corporation level for the personal holding company tax and accumulated earnings tax.
5. To reduce payroll taxes by increasing distributions and reducing salaries – although this has been challenged by the Internal Revenue Service in recent years.
6. To create a way to sell the assets of a corporation and obtain capital gain treatment taxed once at the shareholder level

Originally, the qualifications for electing "S" corporate status were very narrow. As an example, the corporation, in order to qualify, could have only a limited number of shareholders and the class of shareholders was limited. Over the years, the number of eligible shareholders gradually increased. Today, a corporation can qualify as "S" status as long as it doesn’t have more than 100 shareholders and there’s basically no limit on the gross revenue of "S" corporations. Very large closely held corporations having billions of dollars in gross revenue can now be taxed as an "S" (flow through) corporation.

This relaxing of "S" corporation eligibility is now being reassessed by Congress as it redefines what constitutes a "small business" and looks for ways to address the large budget crisis. In addressing the budget crisis, Congress is trying to stay away from the appearance of raising taxes, so it’s looking for ways to close what some taxpayers would call "tax loopholes"; and redefining what is considered as "small business" is one of the ways it may raise revenue without actually raising tax rates.

If Congress does in fact change the way the "small businesses" are taxed, unless there’s an exception for how asset sales are handled, many owners will be hit with a large tax bill when the time comes to sell their business.

Based on this Bloomberg report, this proposal is still very tentative and in the discussion stage; and is only one of many proposals being considered by Congress. Also, in this Bloomberg report is a very detailed 42 page report on the subject submitted by the "Office of Tax Analysis Department of the Treasury Technical Paper 4"issued in August 2011.

We advise all owners of "S" corporations (and LLC’s) to stay close to their tax advisors in keeping current with developments on this very important subject.

Robert H. Perry & Associates, Incorporated was established in 1977, and has represented over 150 security guard company sellers located in the United States, Canada, Western Europe, South America, the Caribbean, and the Middle East.

This informational letter does not render legal, accounting or tax advice. Neither Robert H. Perry & Associates, Incorporated nor its employees offer such services, and accordingly assume no liability whatsoever in connection with the use of the information contained herein. If legal, accounting, or tax advice is required, the services of a competent professional should be obtained. © All rights reserved. May not be reproduced without permission.

Buyers for private contact security companies today are still looking at the types of accounts, geographic operating territory, number of armed guards, average site size, quality of management going with the sale, etc. as a way to establish its initial interest in a selling company. The buyers are also placing a lot of importance on the seller’s reported profits at the site level. The seasoned buyer will know how much it takes to run a branch and administrative office, irrespective of what it may be costing the seller, so the profits (or losses) at these levels are not nearly as important to the valuation. But there’s not much the buyer can do to improve on the profit at the site level without jeopardizing the relationship with the account.

Therefore, in arriving at its offering price, the buyer will be relying heavily on the profit the seller is reporting at the site level, which usually includes the gross billing and gross guard payroll, as well as other associated costs that apply to the site; such as payroll taxes, workers compensation insurance, uniforms, dedicated site equipment, non billable site supervisors and any other costs that may be associated with running or obtaining the account. The buyer will be performing extensive due diligence to confirm that the figures are correct. The confidence level the buyer will have in the figures will depend on the quality of the financial controls and records the seller has in place. This is why having good financial controls and records play an important part in the seller receiving a premium when it comes time to sell. If the buyer can’t get the confidence level it needs, it will make a conservative offer; one that allows for a margin of error in the buyer having to guess at, or use estimates in computing, the profit at the site level.

Unfortunately many owners of small to medium sized companies do not place enough importance on these financial systems, which often results in the seller getting less than what the company is really worth because they can’t prove what they’re making.

The seller will have to help the buyer build the financial model. The company may have a very attractive site level profit, but it’s up to the seller to prove it; and proving it involves a lot more than just handing the buyer billing invoices and payroll registers for a couple of periods. The proof lies in the underlying financials that will confirm that the profit will remain at a certain sustainable level over time.

Not only will a good financial reporting system help add value to the company when it comes time to sell, but it will be a valuable tool in helping the owners stay profitable and competitive during the time the owners are running the company. It will identify the areas where costs may be getting out of hand or otherwise need improving, which is important in today’s challenging economy where cost containment is crucial.

Here’s what buyers like to see in the sellers’ financial reporting system:

• A customer profit report – this report will show every customer, by site, with the hours worked, gross billing, gross payroll and any special costs that apply to the customer – such as dedicated site vehicles, special insurance, etc. A more advanced report will further show the billable and non billable hours (vacations, holidays, training, etc.) with the associated billing and pay, as well as the overtime premium for both payroll and billing.

  Most companies that have the capability to produce this report can produce it after any billing or payroll cycle. In examining this report, buyers will be looking for consistency in the accounts from one period to the next, as well as how the information by period compares to the overall site level profit reported on the internal financial statements.

• Interim Financial Statements with Month End Accruals – Meaningful interim financial statements will show the results for the current month compared to the same month last year, as well as year-to-date amounts compared to the same period for the previous year. It may also show budgeted figures (although not as important as the actual results). Also, if the selling company has multiple office locations, there should be a financial statement for each branch.
  • Sources of revenue and related costs should be identified: In helping a buyer better understand and verify the profit at the site level, the statements will also identify the revenue according to source (i.e.; permanent accounts separate from temporary accounts, regular straight-time billing separate from overtime premium billing, and patrol and any other non guarding service would also be a separate line item).

    The labor and the other costs for the various sources of revenue will also be separated so the buyer can readily determine the profit by category of service (i.e.; how much its making on the permanent work vs. the temporary work, and how much its making on the patrol service, etc.).

  • Proper cut off of billing and expenses: A common mistake many companies make is not having a proper cut off of billing and expenses. This is especially true where a company has several billing periods available for the clients (i.e.; some on weekly, others on semi-monthly or monthly, etc.) that do not match the payroll period. When this is the case, the company should have a procedure in place to book the revenue that has been performed, but not billed, in order to get the billing in the same period as the recording of the labor for the respective service.

    Another common mistake is not properly recording advanced billings. This is more common for patrol customers than for guard customers, but in either case, if the invoice has been prepared and entered in the financial system before the service is actually rendered, the billing should be booked as advanced billings then recognized as the service is actually performed.

  • Certain below the line expenses should be detailed. Not only will the buyer be scrutinizing the financials to determine the reported profit at the site level, but the buyer will also be looking at the costs below the site level profit line. In scrutinizing these costs, the buyer is looking for possible other costs that may be important to running the site, but may have been left out of the site level profit computation; and it’s common for companies to leave certain costs out of the site level profit section. Some of the costs commonly left out of this section and put "below the line" are: non-billable site supervisors; dedicated site vehicles; special equipment required at the sites; various insurances (where it’s not convenient to break out the total insurance bill between guarding personnel and office personnel), etc. Also, there are some costs that should be detailed, even though they may not be site level expenses.
    • Insurance – insurance expense should be separated to show the amounts for workers compensation, general liability, employee hospitalization and health, etc.
    • Classes of Compensation – compensation should be separated to show the amounts for non-billable roving supervisors, executives, clerical personnel, dispatch personnel and any other classes of labor. The better detail, the more it will help the buyer understand what it takes to run the business.
    • Vehicle Cost – to the extent it can be easily identified, vehicle cost should be separated by roving supervisors and executives.
• Year End Financials – The internally generated year end financials, which usually are very detailed, should agree with the outside accountants’ financial report. This means the company books will need to be held open until it receives all the adjustments from the outside accountant. This is necessary in order to produce an accurate report (with all required adjustments) that has all the detail the buyer needs.

What does this mean for owners wanting to sell now, but do not have these financial controls in place?

The good news is that sellers needing or just wanting to sell now can still get a good deal in the marketplace even without these elaborate systems in place, because there are buyers that need to make acquisitions. But the selling price may not be quite as good as it would be if the seller has these systems in place; unless the seller can otherwise prove how much profit it’s making at the site level. In fact, we find that there are very few of the smaller companies that strictly adhere to GAAP (Generally Accepted Accounting Principles) accounting rules and some do not have systems that show the profit by site on a regular basis. However, the better the financial system, the better the chances are that the seller will command the premium it’s expecting and deserves from the sale because it takes away the "margin of error" or "guess factor" the buyers have to consider when they can’t get all the information they need to properly evaluate the company.

Year 2010 proved to be very active for mergers and acquisitions of security guard and central station alarm monitoring companies.

Large transactions worth noting are:

• January 18 – Tyco acquired Broadway Security alarm monitoring company from Brink’s (purchase price $1.8 Billion).

• April 26 – Alarm industry veterans Jim Covert and Tim Wahl teamed with the GTCR private equity group to acquire Protection One for approximately $828 million.

• June 6 – Pinkertons Government Services (a wholly owned subsidiary of Securitas AB) acquired Paragon Systems, the Federal Government security subsidiary of Tri-S Security Corporation, for approximately $35 million.

• September 6 – Large privately held security guard company acquired the $140 million guarding subsidiary of a privately held conglomerate.  There was not a press release on this transaction.

• October 6 – Henry Brothers Electronics announced that it is to be acquired by Kratos Defense & Security Solutions for approximately $45 million.

• November 10 – Reliance Security Services in the United Kingdom announces that it is to be acquired by Securitas for approximately $73 million (US).  Revenues were $340 million (US).

• December 17 – Ascent Media Corporation, a California based holding company, announced that it was buying Monitronics International.  Monitronics provides 3^rd party monitoring services to more than 700,000 residential, small businesses, corporate and governmental customers.

In the Cash Handling Sector, Brink’s made two significant acquisitions:

• November 17 – Brink’s acquired Servico Pan Americano de Protection, Mexico’s largest secure logistics company for $60 million.  Revenues were $385 million.

• December 23 – Brink’s acquired Threshold Financial Technologies (Based in Canada) for $40 million.  Revenues were $48 million.

One new investment group entered the security guard market through 3 simultaneous acquisitions:

• May 3 – LaSalle Capital Group, LP acquired Industrial Security Services, Inc., and the operating assets of Leonard Security Services, Inc. and Eagle Security, Inc. The combined companies will operate under the name of United American Security, LLC.

Several significant central station alarm monitoring companies switched financial sponsors:

• November 1 – Summit Partners acquired Central Security Group from Great Hill Partners. Great Hill acquired CSG in 2005.  CSG monitors approximately 135,000 accounts.

• November 8 – Oak Hill Capital Partners acquired Security Networks from GMH Associates. Security Networks monitors approximately 70,000 residential and commercial accounts.

The charts below tell the story of what happened in 2009 and 2010:  As a way of staying abreast of what’s happening in the buying and selling of security companies throughout the world; our firm is constantly searching the internet and security publications looking for announcements relating to completed sale transactions.  Although we found hundreds of transactions for security related companies, we only tracked (and posted) the activity in the security guard, central station alarm, “plain vanilla” systems integration and certain other sectors such as armored car companies.

We invite you to view the details of the below transactions in the “News and Press” section of our website at http://www.roberthperry.com/news.cfm; then visit our site often to find out what’s new.

Overview of Worldwide Completed Transactions:

There were 65 announced worldwide completed transactions in 2010, compared to 56 in 2009 and 59 in 2008.  It’s interesting to note that there were 4 announced guard company transactions in the United Kingdom in 2008, 1 in 2009 and 9 in 2010.  We believe the significant increase in transactions in the United Kingdom resulted from the UK recession issues described in Security Management Today’s overview of the 2011 Plimsoll report – click here to view the SMT article.

Also of interest is the number of guard company transactions:  On a worldwide basis, the number of guard company transactions represented about 50% of the total transactions.  And nearly half the transactions were for U.S. based sellers; not surprising, since the U.S. has the largest security market in the world.

2011 promises to be even more active in mergers and acquisitions for the security industry.

Many of the large security companies, as well as large investment groups are sitting on more cash than anytime in recent history and they are obligated to put the cash to work for their investors; and one of the best ways of doing this is buying companies.  There has already been one significant announcement in the security space in 2011 as Securitas announces its intentions to buy the UK Chubb Security operations from UTC.  Securitas will pay approximately $53 million (US) for Chubb.  Chubb boasts revenues of almost $200 million (US) with approximately 5,000 employees.

Also expected to drive the increased activity in selling security companies in 2011 are factors such as:

• The extension of the Bush tax cuts approved in December 2010 that keeps the capital gains tax rate at 15%.  Owners wanting to sell, but couldn’t complete the sale in 2010, now have two more years of opportunity to get this attractive tax break.

• The lingering inability for many small to medium size companies to raise money or maintain existing banking relationships.

• The margin pressure concerns and the uncertainty surrounding the future of the new health care bill and how it will affect security companies.

The valuations of these companies are dropping because the bad economy has finally started to show its effect on the financials.  Margins are shrinking; a result of increased pressures on billing rates from customers, as well as competitors; and operating costs are increasing – both resulting in less profits to the selling company. Since buyers compute their offering prices on what they can expect to make off the acquisitions, the profit deterioration has a direct negative impact on what these sellers can reasonably expect to get for the company in a sale transaction.

Although this drop in valuations relates, to a large extent, to the decrease in sellers’ profits, it also has to do with the buyers’ increased costs.  Normally, as a buyer is computing the price it’s going to offer the seller, it takes into consideration its cost structure in running the business and actually gives the seller credit, in the purchase price computation, for the savings the buyer may bring to the acquisition.  But many of the buyers today are also experiencing increased costs of doing business through increased unemployment taxes, health insurance, etc.; which means less cost savings to pass on to the seller in the form of increased purchase price.

Every buyer has its unique way of calculating its pro forma profits from the acquisition as a way of computing the offering price to the seller.  However, two of the most important factors in all buyers’ profit calculation methods are the site and branch level profits.  The buyers make further adjustments from these two profit levels for the amount of additional costs the buyers will have to incur in order to run the accounts and keep the customers its buying satisfied with the service.

To better understand how valuations may be dropping for some sellers, take the case of the seller of a $20 million security guard company who started to sell his company in 2008 and went so far as to receive offers.  A buyer prospect, after going through an analysis of the characteristics of the company and recasting the financials, made an offer of $7.2 million (to include just the accounts and operating assets – seller keeps the rest of the balance sheet, in other words, not on an enterprise value basis).

The seller got “cold feet” and decided not to sell in 2008; then put the company back up for sale in 2010 – expecting at least the same offer, if not better.  But to the seller’s surprise, the value of the company as seen by the buyer prospects had diminished.

Company’s financial situation for 2008 & 2010:

The company’s financial situation in 2010 showed no revenue growth for the past 2 years, and the site level and branch profit slipped 2% [a trend consistent with the results we reported in the white paper we published in July 2010].

*  The amount for “net earnings after corporate expenses” is not presented since most “industry buyers” (the large companies already in the security guard space) make significant adjustments to this figure in computing their pro forma profit from the acquisition, which significantly lessens the importance this amount plays in the valuation process.

Since buyers ultimately value their target company based on some multiple of profits, if we use the site level and branch level profits as benchmarks for the multiple, we find that the $7.2 million offer in 2008 was 2 times the site level profit and 3 times the branch level profit.

Therefore, if the buyers in 2010 use the same multiple of either site level or branch profits as the 2008 buyer used, the new valuation based on the $20 million of revenue is between $6 million and $6.4 million, as explained below:

And for the owners who still look at the value of their company in terms of gross units irrespective of the actual profits of the company (i.e.; multiples of gross monthly billing, percent of annual revenue, etc.); in the above example, the value of the company dropped from 4.3 times gross monthly revenue to around 3.7 times gross monthly revenue; and the buyer actually offered the same multiples on profits in 2010 as it offered in 2008.

Therefore, in the above example, the seller of the company that was worth $7.2 million in 2008 would have to sell for somewhere between $6.0 and $6.4 million in 2010 in order to give a buyer the same return on its investment.   Conversely, the buyer would have to increase its normal multiples 13% – 20% just to give the seller the same price in 2010 as it was offering in 2008; and some buyers are doing this today in order to get the deal done

In a market of shrinking margins and increased costs, both buyers and sellers become victims.  In order to get a deal done, quite often the sellers have to settle for a little less purchase price than they were expecting and/or buyers have to settle for a lesser return on the investment in the acquisition.

What Lies In The Future For Multiples

And What Can Owners

Expect When They Sell Their Business?

Owners who are able to grow their business and keep, or improve on, margin levels should continue to enjoy an increase in the value (and expected selling price) of their company, since there will continue to be a need for the generous buyers to increase volume through strategic acquisitions. The multiples on profits the buyers are willing to pay should continue at the current level or improve somewhat for certain strategic acquisition candidates.

On the other hand, owners who are experiencing margin pressures and increased costs at the site and branch level should expect lower valuations when the time comes to sell the business.  Even though the total dollars received in a sale in today’s market may be less than what it would have been a couple of years ago, it still may make sense to sell.  The questions owners thinking about selling should ask themselves are:

1. Is the enjoyment factor in owning and running the company diminishing?
2. Are there further margin pressures and operating costs on the horizon which will result in further deterioration of the total value of the business?
3. Can we sell the company for what the market will pay now and invest the proceeds in another business or investment vehicle that will give the same or better return?

Written by:  Robert Perry

Most owners have a certain net figure that they need from the sale of their business in order to justify selling. Unfortunately, increases in taxes do not equate to an increase in the multiples paid for security guard companies. Therefore, in order for a seller to get more for a business in a period of rising taxes, the business simply has to be worth more. Which means the business has to become more profitable on the same revenue, the revenue has to increase dramatically, or there has to be a dramatic shift in the company being an attractive target for an aggressive buyer – and none of these factors seem to be in the future for the sale of security guard companies.

To put this tax increase into perspective: consider an example of a $12 million revenue company that sells for $5.5 million ($4.5 million for the customers plus $1.0 million of net working capital). Further assume that the company operates as an “S” corporation. The $4.5 million is taxed at a 20% capital gains rate (15% Federal and 5% state) and the $1.0 million goes back to the owner tax free, leaving the owner with $4.6 million after paying taxes; assuming the owner sells in 2010.

Here’s the alarming part: If the capital gains rate goes to just 20%, a sale of the above $12 million company in 2011 would net the owner $4.375 million. If the rate goes to 28%, as some doomsayers are predicting, the sale of this $12 million company would net the owner $4.015 million – almost $500,000 less than what the owner would have received if he had sold the company for the same multiple in 2010.

Advice: Owners that are seriously thinking about selling in the next couple of years should immediately examine their likely potential for growth against the almost certain tax increases to determine if it might be advisable to accelerate the sale process.

In order to start and maintain the momentum, both the buyer and the seller have to be committed to the transaction; it cannot be a one-sided effort. As previously stated, each side maintains the momentum in order to show the other side that there’s interest, but both parties also maintain the momentum for its own benefit. Usually, there’s some time-line necessary to getting the deal closed in order for either side to enjoy the benefits of the transaction. Momentum Is Important to Both Sides

From the buyer’s perspective, momentum ensures that the transaction closes, which is very important to the buyer, especially if the seller’s company is a vital part of some strategic plan. For example, the buyer may need the company in order to enter a certain vertical account or geographic market, or it may provide an attractive return on investment. In either case, the longer the transaction takes to close, the longer it takes the buyer to start benefiting from the acquisition.

From the seller’s prospective, the momentum is vital to keeping the buyer interested in the deal, especially true for buyers who are pro-active in the acquisition market. If the buyer’s due diligence team must wait for information from the seller, or the seller’s attorney does not respond promptly to the buyer’s attorney on important purchase agreement issues, the buyer’s personnel will be assigned to other projects. Then the buyer’s team might not be available when the seller is ready to resume the process. If this scenario goes on long enough, frustration starts to set in; the momentum is slowed down, and the negotiations may even stop completely.

Organizing the Process to Maintain Momentum

Some of the steps in the negotiations require the buyer and/or seller to be pro-active and even sometimes aggressive in dealing with getting information or decisions on important issues from the other side. The buyer and seller are usually concerned that any eagerness they display could cause them to lose negotiating leverage in the transaction – and rightly so. Whatever the decision as to who is best to handle the steps, the following are some important steps in organizing the process and making sure the momentum is maintained:

• Assign a “point persons” to manage the activities for their respective side.
• Exchange detailed contact information for personnel assigned to the transaction.
• Meet with its respective attorneys, tax advisors, point person, and transaction manager to reinforce the reasons for doing the transaction.
• Engage in frequent communications between all the team members with decision makers and updating status to the entire team.
• Start accumulating the due diligence information BEFORE any buyer prospects are contacted.
• Seller should review the buyer’s standard purchase contract.

Regardless of the seller’s or buyer’s need or desire for a quick deal, momentum in the acquisition process should be about moving through each stage of the negotiations in an orderly fashion balancing the needs of both parties. And not so fast as to cause mistakes that may later prove costly to either side.

Companies are selling divisions or subsidiaries that no longer fit their core operations. The benefits to the seller can be dramatic: making cash available to pay down debt, getting rid of an unprofitable business unit, or in the case of a small closely-held company, offering the opportunity for the owner to slow down, but not get out of business entirely.

For the owners of the smaller company, the decision to sell, or not to sell, part of the company is often driven by emotion, rather than economic prudence. Smaller companies are owned by entrepreneurs who make all the decisions for their company and tend to measure their success in terms of gross volume. The entrepreneur is infatuated with bigness. Making the company smaller is usually not an option. Instead of selling unprofitable divisions, the owner keeps trying to fix them by infusing borrowed funds. This is expensive and has to be paid back. Such a rigid fixation on size often leads to financial problems for the entire company. But there have been some owners of closely-held companies that realized the importance of selling off part of the company when the timing was right. They proved that the advantages found in the partial divestiture were not a secret lost in the large conglomerates. They were able to recognize the value in selling off part of the company — whether it was a need to come up with quick cash, divest an unprofitable division, or just sell a majority of the company and keep the less stressful part to supplement income during retirement.

In preparing for this article, we reviewed the 150 plus security guard industry transactions our firm has managed. We have represented sellers of companies with annual sales as small as $1 million, as well as multi-billion dollar public conglomerates in selling off security guard divisions. Many of our seller/clients had multiple offices or divisions, which allowed for selling off part of the company without taking value away from the business that remained.

We were reminded from our review that over 100 of these 150 plus transactions had something to do with a partial divestiture; even though some of our seller/clients were small.  There is no company too large and few companies are too small to take advantage of a partial divestiture. The only requirement is that the company has “divisible units.” The partial divestiture provides needed capital in the form of equity, as opposed to loans that are expensive and have to be paid back…and helps the company reach their financial goals — first by downsizing through getting rid of unwanted separate units — then taking the proceeds and redirecting them into more profitable areas.

With today’s economic challenges, having sufficient cash on hand certainly helps the company weather the economic storm. After downsizing through selling off part of the company, the resulting company is usually built back to one larger than its original size — more focused and more profitable.

Buyers today first decide whether or not they are interested in the company based on several factors – such as geographic location, types of accounts, margins, etc.  If the seller passes this initial test, the buyers then do a return on investment computation.  This will tell the buyer what they can make off the acquisition and is the basis for their offer.  And to prove how unreliable the old “street formulas” are, we’ve seen the prices, stated in terms of gross units, as low as 2.5 times gross monthly revenue (20% of annual gross) to as much as six times gross monthly revenue (50% of annual gross) – plus the book value of the company.  These offering prices, when converted to multiples of the SELLER’S earnings, are often in the mid double digits, or off the charts in the case of sellers actually losing money.

How can these buyers pay so much for these marginally profitable companies?  They make the company more profitable than it was in the hands of the seller.  They do this by eliminating redundant costs and by reducing operating costs through volume buying. And, contrary to what a lot of nervous owners believe, many of the expense savings do not come from changing the seller’s company.  Many result from the buyer’s ability to be more efficient now that it has a much larger volume of business in its operating area.  For instance, the buyer may move its operations to the seller’s office, thereby eliminating the rent the buyer was paying on its space; or the buyer may move the accounting to the buyer’s home office, eliminating a few clerks.  The buyer also will probably have insurance rates much lower than the seller’s; and the cost of borrowing money will be much lower.  When all these savings are figured in, the buyer will usually wind up paying around five to seven times the BUYER’S proforma profit from the acquisition – albeit a much larger multiple on the SELLER’S reported profits.