Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Dog Daycare Sold at 300x EBITDA with Recurring Membership Data
Transcript
- Lucas: Luna, I want to talk about a business type that almost everyone has encountered but almost nobody thinks of as a high-multiple exit. A dog daycare in the suburbs sold recently for what works out to roughly 300 times its annual earnings. Luna: Three hundred times. That's not a typo? Lucas: Not a typo. And the buyer wasn't some starry-eyed dog lover with deep pockets. It was a private equity-backed platform that already owned a dozen pet services brands. They paid that multiple because of something very specific in the data room. Luna: Right, so it's not about the dogs. It's about the numbers behind the dogs. Lucas: Exactly. The business had three locations in a mid-sized metro area, maybe 30 employees total. Revenue was about one-point-two million dollars. Nothing crazy. But eighty-five percent of that revenue came from monthly membership plans. Not day passes, not a la carte walks — recurring subscriptions, like a gym membership, but for dogs. Luna: And I'm guessing the churn numbers were good. Lucas: Really good. Average retention was fourteen months. That's long for a pet service. And they had a waitlist of about forty dogs per location. So not only was revenue predictable, there was built-in demand that wasn't being served. The buyer saw that and said, 'We can plug these locations into our existing platform, cut overhead, and instantly add that waitlist revenue without spending a dollar on marketing.' Luna: So the multiple reflects the scarcity of that data — not the physical assets. Lucas: That's the whole story. The kennels, the play yards, the vans — those are worth maybe fifty cents on the dollar at auction. But the list of 850 members with credit cards on file, average monthly spend of 110 dollars, and a known churn curve? That's an asset that a platform buyer can model and value with real precision. Luna: Did the seller have to educate the buyer on those metrics, or did they come in knowing what to look for? Lucas: The buyer knew exactly what they wanted. They'd done five acquisitions before this one. But the seller made it easy by organizing the data room around those metrics. They didn't just dump three years of P&Ls and bank statements. They had a separate tab for membership cohorts, monthly churn by location, lifetime value calculated with a simple three-variable model. Luna: So they were basically handing the buyer the thesis on a silver platter. Lucas: That's the smart move. A lot of business owners think the data room is about proving you didn't cheat on your taxes. But for a strategic buyer, the data room is about proving you have a repeatable, predictable machine. If you can show that your revenue is recurring and your customers don't leave, you've already won half the valuation battle. Luna: What was the final purchase price, roughly? Lucas: I've seen reports that it closed around three-point-six million dollars. That's about three times revenue, but 300 times EBITDA. The EBITDA itself was only about twelve thousand dollars — because the owner was taking a big salary, running personal expenses through the business, standard small-owner stuff. But the buyer looked at normalized EBITDA, added back the owner's compensation and perks, and still got a multiple in the high double digits on that adjusted number. Luna: So the 300x headline is on the real, unadjusted EBITDA. Adjusted, it's lower but still impressive. Lucas: Right. The 300x is the raw number before normalization. On adjusted EBITDA, the multiple was closer to 35 times. Still very high for a service business. But the headline 300x is what gets people's attention, and it's real in the sense that the buyer paid that multiple on the actual cash flow the business threw off after everything. Luna: And the deal structure? All cash? Lucas: It was a mix. About 60 percent cash at close, 20 percent seller financing over three years, and 20 percent earn-out tied to retention of the existing membership base. The seller financing was key because it bridged the gap between what the buyer's model said the business was worth and what the seller wanted. The earn-out protected the buyer if members churned faster than expected. Luna: So the seller had confidence in the retention data. They were willing to put some of the purchase price at risk on that metric. Lucas: Exactly. And that's a signal to the buyer. If the seller is willing to tie part of their payout to retention, the data is probably solid. It also aligns incentives post-close. The seller stayed on as a part-time consultant for six months to help with the transition, and the earn-out gave them a reason to make sure the members didn't leave. Luna: What's the lesson here for a business owner listening who runs something subscription-based? Not necessarily dogs — maybe a cleaning service, a lawn care company, a meal prep business. Lucas: The lesson is: start tracking cohort data yesterday. Know your monthly churn. Know your customer lifetime value. Know your waitlist conversion rate. Those numbers are worth more than your equipment, your inventory, and your brand name combined — if you're selling to a platform buyer. And you can build those metrics even if you only have one location and twenty customers. Luna: Yeah, and the seller in this case started tracking that stuff years before they planned to sell. They didn't do it for the exit. They did it to run the business better — and the exit was a side effect. Lucas: That's the right way to do it. Build the business as if you'll own it forever. The exit takes care of itself. And when you do decide to sell, you'll have the data that separates you from the hundred other dog daycares on the market. Luna: Quick honest thing — we talk about these deals all the time on this show, and we're able to keep it ad-free because a small group of listeners chips in through buy me a coffee dot com slash fexingo. If these conversations have helped you think differently about your business, that's the only reason we can keep going. Lucas: Yeah, it's a small thing that makes a big difference. And we're grateful for it. Luna: So back to the dog daycare — what's the one thing you'd tell a business owner to do this week if they want to start building that kind of exit value? Lucas: Calculate your monthly churn rate. If you have 100 customers and you lose 5 per month, that's 5 percent monthly churn. Then calculate average customer lifespan — that's 1 divided by churn rate, so 20 months in this case. Then multiply by average monthly revenue per customer. That's your approximate lifetime value. Once you know that number, you know how much you can spend to acquire a customer. And that's the foundation of a valuable business. Luna: And if you don't have a subscription model yet? Lucas: Consider adding one. Even a simple punch card or monthly package can convert one-time buyers into recurring members. The dog daycare started with day passes and moved to memberships after the owner noticed that the same dogs came three times a week anyway. They just formalized it. That one change was what turned a commodity service into an asset that traded at 300 times earnings. Luna: It's a good reminder that the most valuable thing you can build isn't a bigger facility or more vans. It's a predictable revenue stream that someone else can model. Lucas: Exactly. And that's the takeaway for this episode. Build the machine, track the data, and the multiple will follow.