Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Commercial Janitorial Business Sold at 11 Times EBITDA
Transcript
- Lucas: So Luna, I spent the morning digging into a sale that just closed in the commercial janitorial space, and it's a perfect example of why the business model matters more than the industry. Luna: Oh, I'm intrigued. What was the multiple? Lucas: Eleven times EBITDA. That's for a company that basically sells mops, vacuums, and labor. Luna: Eleven times? I mean, I know we've seen higher on this show, but for janitorial? That feels like a stretch. Lucas: Right, and that's exactly what makes it worth talking about. A lot of owners assume a commodity service means a commodity multiple. But this operator built something buyers were willing to pay real money for. Luna: So what did they do differently? Because I'm guessing it wasn't just the contracts. Lucas: Well, the contracts were part of it. About eighty five percent of revenue came from recurring commercial accounts, and a big chunk of that was healthcare facilities. Clinics, outpatient centers, even a couple of smaller hospitals. Luna: Healthcare cleaning is a different animal though, right? More regulation, more scrutiny. Lucas: Exactly. And that's a feature, not a bug. It's harder to switch vendors because the cleaning staff needs training on infection control, bloodborne pathogens, that kind of thing. So once they're in, they tend to stay. Luna: That's a real moat. But I've also seen healthcare-heavy businesses get hit with customer concentration. Was that an issue here? Lucas: It actually wasn't. The largest client was maybe six percent of revenue. They had over forty accounts, and no single facility was critical to the bottom line. Luna: That's rare for a smaller service business. Most of the ones we've talked about have one or two big clients that scare off buyers. Lucas: Absolutely. And the owner didn't just stumble into that. He told me he made a conscious decision years ago to cap any single account at around five percent. He even let a couple of bigger contracts go to keep the mix healthy. Luna: That takes discipline. Most owners chase the big fish and end up with the classic concentration problem. Lucas: And that's one of the main reasons a bookkeeping firm we covered sold for just two times EBITDA. They had three clients making up seventy percent of revenue. Buyers priced in the risk of losing one of them. Luna: So the janitorial guy basically did the opposite. But what about the operational side? Cleaning businesses usually have high turnover. Lucas: That was the other big piece. The average tenure of his site supervisors was over seven years. And they had a real training program, not just a quick walkthrough. Luna: Buyers love that. It means the business doesn't fall apart if the owner goes on vacation. Lucas: Exactly. And that's where the key person risk conversation comes in. This owner had been hands-on for years, but he'd been grooming a second-in-command for the last four. The buyer could see that the guy could run the operations without the founder. Luna: And you know, that's something a lot of owners miss. They think the value is in the clients, but it's really in the systems and the people. Lucas: Right. And speaking of systems, they had standard operating procedures for everything. How to handle a panic alarm in a clinic, how to dispose of hazardous waste, even the order in which you clean a patient room. All documented. Luna: That's the kind of stuff that shows up in due diligence and makes an acquirer feel safe. Lucas: And on that note, I'm going to take a quick pause here for something that's not really a pause. You know, if you're listening to this and you've gotten something out of these conversations, maybe a new way to think about your own business, a couple of dollars a month is genuinely what keeps these going. Buy me a coffee dot com slash fexingo, if you've felt that. It's a small thing, but it makes a real difference. Luna: Yeah, it really does. And it helps keep the show free for everyone. Lucas: So, back to the deal. The structure also played a role. It wasn't an all-cash exit. There was an earn-out tied to client retention over the first two years. Luna: That's a smart way to bridge the gap between what the seller thinks it's worth and what the buyer is willing to pay. Lucas: And it worked here because the buyer was convinced the recurring revenue was sticky. They put up eleven times on the base, but the earn-out could push the total to closer to twelve and a half. Luna: So what does that tell us about the market for these kinds of businesses in 2026? Lucas: It tells me that buyers are still willing to pay up for quality, but they're also being more careful about what they're buying. The days of a generic cleaning company getting a big multiple are gone. You need something that separates you. Luna: And that something can be a niche, like healthcare, or a contract structure, or even just a really solid team. Lucas: Right. The owner of this company didn't invent anything. He just built a business that was less risky than a typical janitorial firm. And that lower risk is what got the multiple. Luna: I think the takeaway for our listeners is pretty clear. You can't control the market, but you can control how your business is built. Lucas: Exactly. And there's one more thing. This deal closed in under ninety days from the letter of intent to the final signing. That's fast for this type of business. Luna: Why so quick? Usually there's a lot of back and forth. Lucas: Because the owner had all his paperwork in order. Financials, contracts, employee records, everything was clean and ready. The buyer's due diligence team was in and out in a week. Luna: That's a lesson in itself. Preparation doesn't just get you a better multiple, it gets you a faster close, which means less time for the deal to fall apart. Lucas: And less time for the buyer to get cold feet. I've seen deals drag for months and then die for no reason other than fatigue. Luna: So, for someone listening who owns a service business, what's the one thing they should do today to start moving toward a higher multiple? Lucas: Look at your client list. If any single client is more than ten percent of your revenue, start thinking about how to diversify. And that doesn't mean dropping them, just add others so the concentration shrinks. Luna: And if they've already got that under control? Lucas: Then look at your second-in-command. Can they run the business without you for a month? If not, start documenting your processes and delegating more. That single move can add a point or two to your multiple. Luna: It's funny, the stuff that makes a business sell for more is the same stuff that makes it easier to run. Lucas: That's the irony. The owner in this case didn't just build a business to sell it. He built a business that could run without him, and that's exactly what the buyer paid for. Luna: So, eleven times EBITDA. I have to admit, that's a nice exit for a guy who started with one van and a vacuum. Lucas: It is. And it goes to show that in a world where everyone's chasing the next hot tech thing, there's still a lot of value being built in the boring corners of the economy.