Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Landscaping Business Sold at 15 Times EBITDA
Transcript
- Lucas: So we spent the last several episodes looking at businesses that sold for multiples that sound almost absurd on paper—car washes at twelve hundred times EBITDA, ice machine rentals at six hundred. But today I want to talk about a deal that surprised me for a different reason. A residential landscaping company, the kind with lawnmowers and leaf blowers, sold for fifteen times EBITDA. Luna: Fifteen times for landscaping? That's not the kind of number you usually hear for a business with trucks and seasonal workers. Lucas: Exactly. And that's why this deal is worth digging into. The buyer wasn't a competitor. It was a private equity group that had been rolling up similar businesses in the region. They saw something in this company that the typical mom and pop buyer wouldn't have. Luna: Before we go deeper, I want to say something. If today's episode gives you one useful idea about how to position your own business, that's exactly why we make this show. And the way we keep it ad-free is listener support. If you've gotten value from these conversations, you can help at buy me a coffee dot com slash fexingo. Lucas: Yeah, and it genuinely makes a difference. We're not backed by a big network, so every little bit helps keep the episodes coming. Now back to the landscaping deal. Lucas: The company was based in the Pacific Northwest, about two million in revenue, and it had been around for over thirty years. The owner had started it in his twenties, and honestly, it looked like a classic lifestyle business. But when you looked closer, there were two things that made it special. Luna: Let me guess. Recurring revenue and a team that didn't need the owner. Lucas: Both. First, about sixty percent of the revenue came from commercial contracts—property management firms, homeowner associations, a few municipal buildings. Those contracts renewed every year, and some had been in place for over a decade. The other forty percent was residential, but even that was mostly recurring maintenance, not one-off jobs. Luna: So the cash flow was predictable. That's a big deal in a business where people assume it's all seasonal. Lucas: Right. And the second piece was key-person risk. The owner had a general manager who had been there for nine years, plus a sales manager and a crew lead who had been with the company for over fifteen years. They ran the day-to-day operations. The owner was mostly doing strategy and client relationships. Luna: That's almost the opposite of the typical landscaping business where the owner is the one mowing lawns. It makes sense that a PE firm would pay up for that. Lucas: Yeah. And they also loved the gross margins. Landscaping has low overhead once you have the equipment, and this company had an EBITDA margin of about twenty-two percent. For a service business, that's strong. Luna: But still, fifteen times EBITDA is a tech multiple. How did the buyer justify it? Lucas: That's the question. And the answer is that the buyer wasn't just buying the business as it was. They were buying a platform. They already owned two other landscaping companies in nearby states, and this acquisition gave them a new geographic footprint and a management team they could plug into. Luna: Ah, so it's a roll-up play. They're paying a premium because they think they can grow it and cut costs by combining back offices. Lucas: Exactly. And that's a pattern we see a lot in the lower middle market. A strategic buyer sees synergies that a financial buyer wouldn't. In this case, they could cross-sell services, centralize purchasing, and expand the commercial contract base. Luna: So the multiple isn't really about the landscaping itself. It's about what the buyer can make it become. Lucas: That's the key takeaway. And it's a lesson for any owner thinking about selling. The multiple you get depends less on your industry and more on how the buyer sees your business fitting into their bigger picture. Luna: But let's be real, not every owner is going to attract a PE firm. What about the average buyer? Would they have paid a more normal multiple? Lucas: Probably. An independent buyer might have offered six or seven times EBITDA at best. But the owner didn't want to sell to an individual. He wanted a clean exit and a quick close. So he found a broker who specialized in lower middle market deals. Luna: And that broker brought in the PE firm. But what about financing? Did the owner hold a note? Lucas: Yes, and this is where it gets interesting. The PE firm offered a total enterprise value of about five million dollars. They paid three million in cash upfront, and the owner took back a seller note for two million, which was about forty percent of the purchase price. Luna: That's a big chunk of seller financing. Why did the owner agree to that? Lucas: Two reasons. One, the note was at eight percent interest with a five-year term, so he was earning a solid return on that deferred money. And two, it gave the buyer confidence. The owner was signaling that he believed the business would keep performing. Luna: So vendor financing can actually help close the gap between what the buyer wants and what the seller expects. But it's risky if the business declines. Lucas: Absolutely. And that's why the due diligence was so important. The buyer spent four months digging into the contract renewal rates, the employee turnover, and the equipment maintenance logs. They even talked to some of the clients directly. Luna: That's thorough. What did they find that made them comfortable? Lucas: The retention rate on commercial contracts was over ninety percent year over year. That's huge. And the employees had been with the company for an average of seven years, which is rare in that industry. The buyer saw a stable team as the key to keeping those clients. Luna: So it all comes back to predictability. But let me play devil's advocate. Landscaping is still seasonal. How do you account for the winter months? Lucas: Good question. The company had a snow removal division that kicked in from November through February. It only contributed about fifteen percent of revenue, but it kept the crews busy and smoothed out the cash flow. That was another factor the buyer liked. Luna: That's smart. It's like having a built-in hedge against the seasonality. Lucas: Yeah. And it also meant the buyer could project earnings more confidently. They used a five-year forecast that assumed modest growth of about five percent a year, and they discounted the cash flows back using a rate that reflected the low risk they perceived. The math worked out to a fifteen times multiple. Luna: So the multiple isn't just a random number. It's derived from the expected cash flows and the perceived risk. When the risk is low, the multiple goes up. Lucas: Exactly. And that's the fundamental framework. If you want a higher multiple, you need to reduce the buyer's perceived risk. You do that by having recurring revenue, a strong management team, and clean financials. Luna: What about the owner's personal financials? In a lot of these small businesses, the owner's expenses are mixed in with the company's. Lucas: That's a great point. The broker had to do some work to recast the financials. The owner had been paying for his family's health insurance through the business, plus a couple of vehicles that weren't really used for work. They added those back to get a truer EBITDA figure. Luna: So the multiple was applied to the adjusted EBITDA, not the raw number. That's a common practice, but it can surprise a seller if they don't expect it. Lucas: Right. And it's one of the reasons you want a good broker. They know how to present your business in the best light while staying honest. In this case, the adjustments added about two hundred thousand dollars to the EBITDA, which directly increased the sale price. Luna: That's a real benefit. But I'm still curious about the seller's perspective. After all that, was the owner happy with the deal? Lucas: He was. He told the broker that his goal was to have enough to retire comfortably and to know that his employees would be taken care of. The PE firm kept the management team and even gave the general manager a small equity stake to stay for three years. Luna: That's a nice outcome. It's not just about the money. It's about legacy and continuity. Lucas: Yeah. And I think that's a good note to end on. If you're listening and you own a service business, don't assume that your industry caps your multiple. Look at what makes your business special—recurring revenue, a strong team, something that de-risks the future. That's what buyers pay for. Luna: And maybe talk to a broker who understands the lower middle market. It can make a huge difference.