Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Family-Owned Hardware Chain Sold at 10 Times EBITDA
Transcript
- Lucas: So there's a family-owned hardware chain in the Pacific Northwest, four locations, about forty employees, and it just sold for ten times EBITDA. That's a number that would make most Main Street owners do a double take, especially when you consider the pressure big-box competitors have put on independent hardware stores over the past two decades. Luna: Ten times is definitely on the higher end for that kind of business. What made this one special? Lucas: Well, the first thing is location. All four stores sit on land the family bought outright decades ago, so the real estate was a major asset in the deal. But beyond that, the chain had a genuinely loyal customer base. I'm talking about contractors who had been buying from them for twenty years, and the store staff actually knew their names and their projects. That kind of relationship is hard for a big-box store to replicate. Luna: So the buyer was paying for the real estate and the customer relationships. But who was the buyer — a strategic, like another hardware chain, or private equity? Lucas: It was a regional private equity firm that already owned a portfolio of home improvement businesses. And that's an interesting dynamic, because a financial buyer typically looks at cash flows and synergies differently than a strategic buyer would. Luna: Right, because a strategic might be willing to overpay for market share, but a PE firm has to hit its return targets. So how did the deal get structured to justify that multiple? Lucas: Part of it was the real estate. The PE firm structured the deal so that the real estate was purchased separately and leased back to the operating company. That way, they could isolate the property value and the operating business each had its own valuation. The operating company, on its own, was probably worth closer to six or seven times EBITDA, but when you layer in the real estate, the combined price crossed the ten times mark. Luna: So the ten times was really a blended number. The operating business itself wasn't at ten. Lucas: Exactly. And that's a common misread when people see headlines about high multiples. In this case, the real estate was a huge part of the purchase price. But even the operating business had some pretty attractive qualities. Luna: Like what? Because I imagine a hardware business has thin margins, lots of inventory, and a lot of competition. Lucas: True, but this chain had three things working in its favor. First, they had a big pro contractor segment, which is more stable and higher ticket than DIY retail. Second, they offered delivery and job-site ordering that the big boxes couldn't match in that area. And third, they had a parts and service counter that generated recurring revenue from repairs and special orders. Luna: So it wasn't just a store, it was a service business for contractors. That's a much stickier customer base. Lucas: Exactly. And the seller — the second generation of the founding family — had done a lot of work over the past few years to clean up the financials. They moved from a cash-heavy, informal bookkeeping system to proper accrual accounting, they cut underperforming SKUs out of inventory, and they got their shrink rate down to under one percent. Luna: That's a big deal. Shrinkage is a killer in retail, and under one percent is better than most national chains. Lucas: It is. And it showed the buyer that management was disciplined. That discipline — combined with the real estate, the customer loyalty, and the contractor niche — is what justified the premium. The buyer wasn't paying for today's cash flow alone. They were paying for the stability of that customer base and the upside they thought they could capture by adding more services. Luna: So what did the seller actually walk away with? I'm guessing the structure wasn't all cash at closing. Lucas: Right. The purchase price was around thirty million dollars total, split between the real estate and the operating company. The real estate portion was mostly cash, because it was sold to a separate entity the PE firm controlled. But the operating company sale had a significant earnout component tied to revenue targets over the next three years. Luna: An earnout. That can be a trap, as we've talked about before. What were the targets? Lucas: The earnout was tied to maintaining same-store sales growth of at least three percent annually, and also hitting a certain threshold for commercial account retention. If they hit both, the seller could earn an additional two million dollars over three years. Luna: That sounds reasonable, but it still puts the seller in a position where they have to stay involved and hope the new owners don't mess things up. Lucas: Absolutely. And in this case, the seller — the family's daughter, who was the CEO — agreed to stay on as a consultant and regional manager for a year. That was a condition of the earnout. The family wanted a smooth transition, and the PE firm wanted the relationships to transfer, so it made sense. But it's not a pure exit. It's a phased exit. Luna: And that's a common thing we see in Main Street deals. The seller stays on, the earnout is tied to performance, and there's a lot of risk that the new owner's decisions affect whether you actually get that extra money. Lucas: Right. And in this particular deal, the earnout was structured so that the seller had some protection — the commercial account retention target was measured on the accounts that existed at closing, not on new accounts that the PE firm might bring in. That's a smart piece of negotiating because it removes some of the risk that the new owners could change the sales approach and hurt retention. Luna: So the seller had a good advisor. How much of this do you think was the business itself versus the preparation? Lucas: I'd say it's a fifty-fifty split. The business had great fundamentals — the real estate, the loyal customers, the contractor niche. But without the financial cleanup and the disciplined reporting, the buyer would have discounted the purchase price significantly. There's a saying in M&A that you buy the future, but you price the past. If the past is messy, you're going to pay for it in the multiple. Luna: That's a good way to put it. And I think that's the key lesson for any business owner listening — it's not just about what your business is worth today, it's about how well you've documented and presented it. Lucas: And also about what you bundle with the sale. In this case, the real estate being included was a huge factor. If the family had kept the real estate and just sold the operating business, they might have gotten a lower multiple, but they also would have kept a steady income stream from the lease. They chose to sell everything, which gave the buyer a turnkey asset and gave the family a clean break. Luna: Is that always the right call? Selling the real estate with the business? Lucas: It depends on the seller's goals. Selling everything simplifies the exit and can boost the total price, but if the real estate is in a prime location, holding it and collecting rent can be a more valuable long-term play. In this case, the family wanted to exit completely and diversify their wealth, so selling made sense. But I've seen other deals where the owner kept the property and sold only the operating business, and that worked really well for them. Luna: So there's no one-size-fits-all answer. It comes down to your personal financial goals and what you want your life to look like after the sale. Lucas: Exactly. And that's something we always encourage owners to think about long before they put the business on the market. The best deals happen when you're not desperate to sell. This family had been preparing for years — they had a clean balance sheet, strong systems, and a management team that could run the business without the founders. That's what gave them leverage in negotiations. Luna: And that leverage showed in the multiple. Ten times EBITDA is impressive for a retail business, especially with the competition they face. Lucas: It is, and it's a great example of how even a traditional, brick and mortar business can command a premium if you position it right. The key is to understand what buyers are actually looking for — stability, growth potential, and clean financials. And then to present your business in a way that highlights those strengths. Luna: I think that's a perfect takeaway. Before we wrap, if today was actually useful to you, the way these stay ad-free is listener support — buy me a coffee dot com slash fexingo. Lucas: Yeah, if these conversations have moved your work forward in some small way, that's the thing that keeps us going. No pressure, just if you've found real value here. Luna: And we'll get back to the numbers. So if you're thinking about selling your own business, start with the basics — clean financials, strong customer relationships, and a clear understanding of what you're selling and why. That's what makes the difference between a deal that gets done and one that falls apart. Lucas: Well, and the timing matters too. We're in August 2026, and right now there's still healthy appetite for well-run Main Street businesses, but the lending environment is a bit tighter than it was a couple of years ago. That means buyers are being more selective, and they're really looking for businesses that can demonstrate reliable cash flow and a defensible position. The hardware chain had that, and it paid off. Luna: So you think that if they had tried to sell a few years earlier, they might not have gotten the same multiple? Lucas: Possibly. But they also might have gotten a better price if interest rates were lower. It's a timing game, but the fundamentals are what ultimately drive the multiple. A great business will always find a buyer, but you can't control market conditions. You can only control how ready you are. Luna: That's a solid note to end on. Thanks for joining us, and we'll see you next time. Lucas: Take care, everyone.