Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why This Bakery Sold at a 20 Percent EBITDA Multiple
Transcript
- Lucas: So we've spent a hundred and forty-nine episodes talking about multiples — the pet groomer that sold for eight hundred times EBITDA, the car wash at twelve hundred times. Those numbers sound absurd, and honestly, they are. But today I want to talk about a sale that's almost the opposite: a regional bakery chain that sold for a very ordinary-looking twenty times EBITDA. Luna: Twenty times EBITDA is still double what most small businesses fetch. That's not exactly a disappointment. Lucas: Right, but the interesting part isn't the multiple itself. It's why the buyer paid it. The buyer wasn't a private equity firm looking for a steady cash flow. It was a national food distribution company that already serviced the same grocery stores. And they didn't buy the ovens or the recipes — they bought the shelf placement. Luna: Shelf placement. So the real asset was the contracts with the grocery chains? Lucas: Exactly. This bakery had secured contracts to supply fresh pastries to about two thousand grocery stores across the Southeast. And those contracts came with exclusive shelf space in the bakery section. The distribution company that bought them could now fill that shelf space with their own products — not just the bakery's — without having to renegotiate a single contract. Lucas: Think about what that means for the buyer's math. They paid, say, forty million dollars for a business doing two million in EBITDA. That's a twenty times multiple. But because they can now sell their entire product line through those shelves, they're not just getting the bakery's margins. They're getting incremental revenue that has nothing to do with the original business. Their effective purchase price, on a synergy-adjusted basis, might be closer to five or six times EBITDA. Luna: So the buyer is essentially paying for the distribution network and paying very little for the actual operations. That's why they can justify the premium. Lucas: And this is the lesson we keep circling back to on this show: the multiple is never just about the business you're buying. It's about what the buyer can do with it. A financial buyer — someone who just wants the cash flow — would never pay twenty times. But a strategic buyer sees a different value entirely. Luna: So how does an owner figure out if their business has that kind of strategic value? I mean, not every bakery has contracts with two thousand grocery stores. Lucas: That's the key question. And the first thing to look at is whether your business controls access to something a bigger player would pay for. It could be shelf space, it could be a proprietary customer list, it could be a regulatory license that's hard to get. In this bakery's case, the contracts were the treasure. And the buyer even told the seller afterward that the equipment was essentially worthless to them — they had their own ovens. They were buying the right to stand in that aisle. Luna: That's a brutal thing to hear as a seller. But it explains why the multiple was so high. Lucas: It does. And it's a reminder that when you're preparing a business for sale, you need to think about what a strategic buyer might value beyond the financial statements. The bakery's owner spent years building those grocery relationships — attending trade shows, meeting with category buyers, proving they could deliver fresh product every single morning. That's not on the balance sheet, but it's worth more than the ovens. Luna: So what's the risk for the buyer, then? They're paying a premium for those contracts, but what if a grocery chain decides to switch suppliers next year? Lucas: That's the flip side, and it's a real one. In this deal, the contracts had about three years left on average, and the buyer was betting that they could renew them — because they had a bigger product portfolio and better logistics. But if a major chain had walked away, the value of the acquisition would have cratered. The seller, by the way, structured part of the deal as an earn-out tied to contract renewals. So they shared that risk. Luna: Earn-out. That's when the seller gets extra payments if the business hits certain milestones after the sale. Lucas: Exactly. And it's a smart tool when there's a big gap between what the seller thinks the business is worth and what the buyer is willing to pay upfront. The seller gets to benefit if the contracts do renew, and the buyer doesn't overpay if they don't. It aligns incentives, though it does mean the seller has to stay involved — usually in a consulting role — for a couple of years. Luna: So for our listeners who own a business — how do they figure out if they have that kind of strategic hook? Lucas: Start by looking at your customer list. Do you have a few large customers that are locked in with long contracts? That can be a liability if it's too concentrated, but it's also an asset — a strategic buyer might want those accounts. Then look at your distribution. Do you have a route, a territory, a network that would be expensive to replicate? And finally, look at intangibles like brand recognition, proprietary data, or even your team's expertise. Any of those can be the real reason someone buys you. Luna: And that's the opposite of what we usually hear, which is that customer concentration kills your valuation. But here it was the thing that made the sale. Lucas: Right, and that's the nuance. Concentration is a double-edged sword. If you have one customer that's eighty percent of your revenue, that's terrifying to a financial buyer. But if you have a contract with, say, a regional grocery chain that would be hard for a competitor to win, a strategic buyer might see it as a golden ticket. It's all about who's doing the math. Lucas: Let me give you another example. We had a welding supply company on the show a few weeks ago that sold for twelve times EBITDA. That's a solid multiple, but the buyer was a national distributor that wanted their customer relationships in a specific industrial corridor. The seller had spent twenty years building trust with local manufacturers — that was the asset, not the inventory. Luna: So the lesson is the same: the buyer is often paying for your customers and your position, not your stuff. Lucas: Which brings me to a practical checklist I want to give our listeners. If you're thinking about selling in the next few years, here's what to do. First, map out your top ten customers and what they're likely to do after a change of ownership. Second, write down what a competitor would have to spend — in time and money — to replicate what you have. Third, think about who the natural acquirers are in your industry. And fourth, consider whether you can make your business less dependent on you personally, because key person risk is a silent multiple-killer. Luna: That's a good list. I'd add one more: stop trying to maximize every dollar of profit right now. If you trim costs so aggressively that you lose a key contract or a valuable customer, you might be hurting your sale price more than you're helping your EBITDA. Lucas: That's a really smart point, Luna. And it ties into something we see all the time: owners who run their business for cash, not for value. They cut marketing, they delay equipment upgrades, they do everything themselves. And then they wonder why a buyer offers them two times EBITDA instead of ten. The truth is, a buyer is paying for a business that can run without you, and that has growth potential. If you've squeezed all the life out of it, you've squeezed the multiple too. Luna: So what happened with the bakery owner after the sale? Did they stay on? Lucas: They agreed to a two-year consulting arrangement, mostly to smooth the transition with the grocery buyers. The earn-out was tied to renewing those contracts, and from what I've heard, they hit every target. The owner walked away with the full earn-out, plus the upfront payment. It was a good outcome for everyone. Lucas: And that's the kind of deal that doesn't make headlines, but it's the bread and butter for business brokers. It's not about a crazy multiple like the car wash or the billboard company. It's about finding the right buyer who sees value in what you've built that isn't obvious on a spreadsheet. Luna: Totally. And I think that's why this is a great episode for our 150th — it's a reminder that there's no one magic formula. It's about understanding your own business and what makes it valuable. Lucas: Absolutely. So if you're a business owner, take a step back and ask yourself: what would a strategic buyer pay for my access, my relationships, my position? And if you can't answer that, maybe it's time to start building that answer. Luna: And if you're a buyer, the lesson is to look beyond the financials and ask what you can do with the business that the current owner can't. That's where the value creation happens. Lucas: Exactly. And before we wrap up, I want to mention that we do this show every day — episode 150, and we're not slowing down. If these conversations have moved your work forward in some small way, we'd love it if you considered supporting the show. You can do that at buy me a coffee dot com slash fexingo. It's a simple way to keep this thing ad-free, and we appreciate every single person who's ever bought us a coffee. Luna: Yeah, it genuinely helps us keep doing this. And we're not going anywhere — but your support makes it easier. Lucas: So, to bring it back to the bakery — the takeaway is that the multiple is a conversation between the buyer's opportunity and the seller's asset. And if you understand both sides, you're in a much better position to negotiate a deal that works for you. Luna: And maybe that means you don't have to sell at two times EBITDA like that bookkeeping firm we talked about in episode 142. You can do better. Lucas: You can. And that's the whole point. Thanks for being with us on the journey to 150 and beyond.