Confidential Presentation prepared for Recipient’s use only. Not to be relied upon, forwarded or duplicated

without consent of The Edmonds Group, LLC.

Alarm Industry Valuations, Value Drivers and Pros and Cons of Holding vs. Selling Accounts

August 22, 2013

Summary

Introduction Valuation Drivers Valuations and Recent M&A Deals Holding vs. Selling Accounts and Capital

Markets Q&A

INTRODUCTION

Henry Edmonds

Over 28 years of capital markets experience Last 23 in the alarm industry

Started The Edmonds Group in 2004 Co-Founder (1990) and CEO of SLP Capital (thru 2004) Largest lender to alarm industry when sold to CapitalSource in 2004 Over $400M of alarm loans

Wall Street investment banker (1985-1990) $2B in transactions in the airline industry

MBA, Harvard Business School BS, with distinction, civil engineering, University of

Virginia

The Edmonds Group

Investment banking services Capital raising and mergers/acquisitions advisory

40+ transactions closed Average transaction size about $50 million Sweet spot $10 million to $300 million

$3.0+ billion transaction value Focused on security alarm industry Specialize in recurring revenue service businesses

Broad experience representing buyers, sellers, borrowers and capital providers

High level of client service

VALUATION DRIVERS

Key Valuation Metrics

At the highest level, everything can be reduced to four key metrics: Cash flow Attrition rate Growth rate/new account volume Creation cost Only affects valuation when selling a company

Dealers must have the ability to provide good data on these metrics if they are going to maximize value!

Key Valuation Metrics

Cash flow margin from existing customers Adjusted EBITDA and SSCF

Attrition rate Total lost RMR on a TTM or trailing 6 mo basis divided by average

RMR outstanding Canceled and change in over 90 days

Creation cost of new customers Total direct and indirect cost associated with new account creation,

less upfront revenue, divided by newly created RMR “Net Creation Cost” – before allocation of corp. overhead “Gross Creation Cost” – after allocating corp. overhead

Growth rate Not relevant in bulk account sale

Other Valuation Drivers

Size of transaction Company reputation Quality of account and financial data Credit score profile RMR per account/margin Volume of account generation Critical mass per market/geography Ease of reprogramming/line swing Bulk or company sales

Sales model for generating customers

Other Valuation Drivers (cont.)

Install quality/service call rates Contracts Term Organization

Scanned and original contracts

Contract form Automatic renewals, appropriate disclaimers

Billing profile ACH vs. credit card vs. invoice

Age of accounts Type of RMR (residential vs. commercial)

Types of Sale Transactions

Types of transaction matters Company sale Bulk accounts sale Ongoing dealer program sales

Valuation drivers vary depending transaction type Creation cost doesn’t matter in bulk or dealer program sales Credit scores less important in company sale with aged

account portfolio

Average Industry Metrics

Margins on existing customers Adjusted EBITDA of 50% to 65% for companies with scale Average 55%

Attrition rate 8% to 14% Average 12%

Growth rate 5% to 10% Average 8%

Creation cost Gross Creation Cost 25x to 35x Average 28.5x Net Creation cost 20x to 30x Average 25x

Valuation Ranges

Not every company or account base is created equal How does your company’s performance across key

metrics compare with others? If you have strong metrics, get a valuation at the high

end of the range Poor metrics, low valuation Large alarm companies trade at 10x to 13x SSCF Smaller companies trade at 30x to 50x RMR

VALUATIONS AND RECENT M&A DEALS

Liquidity/Secondary Market Activity

Active secondary market for buying/selling alarm companies and/or alarm contracts

Hundreds of transactions occur every year Entire companies Dealer programs Bulk account sales

Larger (more efficient) buyers get predictable and significant economies of scale by acquiring

Large transactions ($500k+ in RMR) trade on multiples of seller cash flow

Smaller transactions trade on buyer’s cash flow not seller’s Hence RMR multiples Still all about cash flow

Dealer Programs/Bulk Sales

Significant factor in the industry today Over 1 million accounts purchased each year Doesn’t include company acquisitions

Dealer program purchases Weekly or monthly closings Typically newly created accounts

Bulk sales Accounts only Aged accounts Usually one-off transaction Seller stays in business

Dealer Program Gross Multiples

Monthly Volume <100/mo. >100/mo. >200/mo. >300/mo.

Credit Score

Up to $50k/year

$50k to $100k/year

$100k to $150k/year

Over $150k/year

625-650 32x 33x 34x 35x 650-700 34x 35x 36x 37x 700+ 36x 37x 38x 39x Avg. Gross: 34.0x 35.0x 36.0x 37.0x Avg. Net: 30.6x 31.5x 32.4x 33.3x Assumes: Auto-Debit Three Year Agreement Actual cash to dealer typically 10% less based on holdback

Company/Bulk Sale Multiples

Source: Barnes Associates

36.1x

39.9x 40.2x

50.8x

31.1x 34.2x 34.7x

28.9x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

50.0x

55.0x

Under $50K RMR $50-100K RMR $101K-500K RMR Over $500K RMR

Max & min yearly averages 2003-2012

Company/Bulk Sale Multiples

Source: Barnes Associates

34.1x 36.9x 37.2x

42.5x

0.0x

5.0x

10.0x

15.0x

20.0x

25.0x

30.0x

35.0x

40.0x

45.0x

Under $50K RMR $50-100K RMR $101K-500K RMR Over $500K RMR

Averages for 2003-2012

Dealer Program vs. Bulk/Company Sale

Monthly Volume Dealer <100/mo. >100/mo. >200/mo. >300/mo.

Up to $50k/year

$50k to $100k/year

$100k to $150k/year

Over $150k/year

Avg. Mult. 34x 35x 36x 37x Company/ Bulk

Up to $50k/year

$50k to $100k

$101k to $500k

Over $500k

Avg. Mult. 34.1x 36.9x 37.2x 42.5x

Notes: Dealer and bulk sales typically have holdbacks (10%+) for account guarantees Company sales typically do not

Major M&A Transactions 2013 YTD

Buyer/ Investor

Acquired RMR (millions)

RMR multiple

SAFE Security Pinnacle (accounts)

$1.6 30’s

Central Security Group

SecureNet $.65 40’s

Goldman Sachs/The Beekman Group

NorthStar $1.0+ DND

ADT Security Services

Devcon International

$3.6 41x

Ascent Media Corporation

Security Networks

$8.8 58x

Major M&A Transactions 2012

Buyer/ Investor

Acquired RMR (millions)

RMR multiple

BV Investment Partners

DTT $1.5 60x

Interface Westec $1.7 32x Norwest Venture Partners

ACA $3.6 50x

Monitronics Pinnacle $4.4 30x Blackstone Group

Vivint $31.6 57x

Protection 1 Vintage Security ~$.40 DND

HOLDING VS. SELLING ACCOUNTS AND CAPITAL MARKETS

Advantages Disadvantages

Limited outside capital needs Cash up-front from buyer

No long term account performance risk

Limited infrastructure beyond sales Limited service, billing,

account retention requirements

Buyer has a lot of control Typically no capital

commitment Terms/availability can change

Holdbacks/ account guarantees

Not creating track record of servicing/retaining accounts

Little control of data and/or account performance

Selling Accounts / Dealer Program

Advantages Disadvantages

Control of accounts Who you sell to What products you sell What you charge How the customers are

serviced and treated

Building a brand Opportunity for much

higher multiple when eventually selling

Significant capital required

Responsible for long term customer performance

Need full infrastructure billing, collections,

servicing, retention

Holding Accounts

Debt Markets

Lots of experience alarm lenders However, most industry lenders require a minimum

deal size of $5 million to $10 million Local/regional banks will lend smaller amounts Lack of industry understanding – low advance rates

Advance rates for industry lenders not high enough to cover all cost of origination – some equity required Senior Debt lending 18-24x RMR Stretch Senior multiples 26-28x RMR Subordinated debt up to 30x RMR

Private Equity

Over 2,000 private equity firms in the US Firms come in all sizes Over $500 billion in money to spend

Many more PE firms interested in the alarm industry Industry performed well through 2008/2009 recession Viewed as safe harbor with good upside potential

However, require positive EBITDA and a certain size Most want EBITDA $1M+ Need to invest at least $2M+ Dealer probably needs to own at least $500k in RMR

Venture Capital and Public Markets

Venture capital firms invest in pre-cash flow and pre-revenue companies

Typically looking for companies that have a unique product or service and potential for exponential growth Not a fit for most alarm companies

Public markets well suited for alarm companies Few alarm companies big enough (very expensive to be public

company/need minimum market capitalization $500M+) Markets don’t really understand alarm industry accounting

Summary – Hold vs. Sell

Outside capital is hard to come by/expensive until a firm reaches a certain size/scale

Dealer programs/selling accounts are a great way to develop a track record Reinvest profits to build infrastructure

Transition through a hybrid approach Sell some accounts, hold the rest

Holding accounts/becoming a full service alarm company ultimately creates much more value

QUESTIONS AND ANSWERS

Contact Information

Henry Edmonds The Edmonds Group, LLC

16 Lenox Place St. Louis, MO 63108

Ph: 314.422.4649 Email: hedmonds@theedmondsgroup.com

Website: www.theedmondsgroup.com Facebook: www.facebook.com/TheEdmondsGroup

Twitter: TheEdmondsGroup