Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Concrete Supplier Sold at 8x EBITDA by Centralizing Purchasing
Transcript
- Lucas: We spend a lot of time on this show talking about valuation multiples — what drives them up, what drags them down. And usually the conversation goes straight to revenue growth or market positioning. But today I want to talk about something that feels more operational but can have an outsized impact on that final number. Luna: Are we talking about a cost-side story? Lucas: Exactly. Cost control, but specifically procurement. I came across a case recently — a concrete supplier based in the Mid-Atlantic, doing about $18 million in revenue. The owner had been running it for 25 years, and he was ready to retire. He figured the business was worth maybe 5x EBITDA, somewhere around $5 million. That's what his bookkeeper told him. Luna: And what did it actually sell for? Lucas: Just over $8 million. At 8x EBITDA. The difference came down to one operational change: centralizing purchasing. The company had been buying cement, aggregate, admixtures — all their raw materials — at the job-site level. Each foreman was ordering what they needed, when they needed it, from whatever supplier they had a relationship with. Luna: That sounds incredibly inefficient. No bulk pricing, no standardization. Lucas: Right. And it turns out it was costing them about $1.2 million a year in excess spend. The owner didn't see it because the costs were buried in individual job P&Ls. But when a buyer — in this case a regional construction materials group — did their due diligence, they flagged it immediately. They said, 'If you consolidated purchasing, you could lift EBITDA by $600,000 or more.' Luna: So the owner did it before the sale? Lucas: He did. And that's the part I find most instructive. He hired a procurement manager — one person, $85,000 a year. That person renegotiated all the supplier contracts, consolidated to three main vendors, and locked in volume discounts. Within 18 months, the gross margin went from 32 percent to 38 percent. EBITDA went from $1.4 million to $1.8 million. Luna: So the multiple stayed the same, but the base grew. That alone added $3.2 million to the sale price. Lucas: Except the multiple didn't stay the same. The buyer was willing to pay 8x on the new EBITDA, not 7x. Because the procurement restructuring made the earnings more durable. The buyer knew that input costs were now predictable, locked in for two years with those vendors. That reduced risk. Luna: So the multiple expansion was a direct result of operational stability. That's a huge point for sellers to hear. Lucas: It is. And the beauty of this move is that it didn't require a major capital investment. It required a mindset shift. The owner had to give up control over purchasing decisions that his foremen had held for decades. That was the hard part. Luna: I bet there was resistance. Field crews like to have their own relationships, their own flexibility. Lucas: Huge resistance. The owner told me that two of his best foremen threatened to quit. They felt like their authority was being undermined. But he stood firm. He explained that the change was about making the company sellable — something he'd never communicated before. And once they understood that, most of them came around. Luna: That's a leadership move, not just an operational one. Lucas: Exactly. And it's a reminder that buyers are looking for businesses that run without the owner's daily involvement. A decentralized purchasing system is a red flag to a buyer. It says the business relies on tribal knowledge and personal relationships. A centralized system says 'this business has scalable processes.' Luna: The numbers back that up. A centralized procurement function is one of the easiest ways to demonstrate operational maturity. Lucas: Let's talk about the specifics of how they did it. The procurement manager started by mapping every purchase order from the previous 12 months. There were over 1,400 individual orders from 47 different suppliers. That alone was eye-opening. The top 10 suppliers accounted for 80 percent of spend, but the other 37 were all getting small, inconsistent orders. Luna: So a lot of fragmentation. Classic sign of decentralized buying. Lucas: Classic. Then she went to the three largest suppliers and said, 'We want to consolidate 90 percent of our volume with you. What's your best price on a two-year contract?' They came back with discounts averaging 12 percent. On an $8 million annual materials spend, that's nearly $1 million in savings. Luna: And that's before you even factor in the reduction in administrative overhead — fewer invoices to process, fewer relationships to manage. Lucas: Right. The CFO calculated that they saved about $80,000 a year just in accounting time. Plus the foremen were no longer spending two hours a week on ordering, which sounds small but adds up. The owner estimated they gained the equivalent of one extra productive day per crew per month. Luna: All from one hire and a process change. That's a remarkable return on investment. Lucas: It really is. And I think the lesson goes beyond concrete suppliers. Any business with fragmented purchasing — whether it's a plumbing company buying fittings job by job, or a restaurant chain buying produce at each location — has this same opportunity. It's just a question of whether the owner is willing to centralize and standardize. Luna: And whether they're willing to do it before the sale, so the buyer sees the benefit in the financials. Lucas: That's the key timing question. In this case, the owner did it 18 months ahead of the sale. That gave enough time to show a track record of improved margins. If he had done it during due diligence, the buyer would have discounted the savings as unproven. Doing it early meant the buyer could underwrite the new EBITDA with confidence. Luna: So if you're listening and you're thinking about selling in the next two to three years, this might be a move to consider. Lucas: Absolutely. And it's not just about procurement. It's about operational tightening in general. If you can show that you've made the business less dependent on any one person, any one supplier, or any one customer, you will command a higher multiple. Luna: We should also talk about the buyer's perspective here. Why were they willing to pay 8x? Lucas: Because for them, the acquisition was a bolt-on to their existing materials division. They already had centralized procurement across their other businesses. So they could immediately fold this supplier into their existing contracts and extract even more savings. They saw a clear path to 10 percent additional margin improvement. Luna: Strategic buyer logic. They're not just buying the historical earnings; they're buying the synergy potential. Lucas: Exactly. And that's why the multiple expanded. The buyer knew they could make the earnings grow. For a financial buyer — a private equity firm — it might have been a 6x or 7x deal. But for a strategic, it was 8x. Luna: Which is a good reminder that not all buyers value the same things. You have to understand who you're selling to. Lucas: Right. If the owner had gone to market without that operational improvement, he would have been selling to financial buyers at a lower multiple. By making the change first, he attracted strategic interest. Luna: So the operational move actually changed the buyer pool. Lucas: It did. And that's a powerful concept for any business owner listening. You can't just wait for a buyer to come along and hope they see value. You have to build the value they're looking for. Luna: And sometimes that means making changes that feel uncomfortable in the short term. Lucas: Absolutely. The concrete supplier's owner told me that the first few months after centralizing were chaotic. Foremen were frustrated, suppliers were confused, and the new procurement manager was overwhelmed. But he stuck with it, and by month six, things started to smooth out. Luna: It's a classic 'worse before it gets better' scenario. But the payoff was enormous. Lucas: Enormous. He went from expecting a $5 million sale to getting $8 million. And the buyer told him later that the centralized procurement was the single biggest factor in their decision to pay the higher multiple. Luna: That's a concrete example — no pun intended — of how a focused operational change can directly impact your exit value. Lucas: And it's a story I think a lot of owners miss. They focus on top-line growth, which is important, but they overlook the operational efficiencies that make the business more valuable to a buyer. Luna: We should also note that the owner didn't have to do this alone. He hired a procurement manager who brought expertise he didn't have. Lucas: That's a great point. One of the hardest things for an owner-operator is letting go of control. But bringing in a specialist — even part-time — can unlock value that the owner can't see because they're too close to the business. Luna: And the cost of that specialist is tiny relative to the value created. Lucas: Exactly. $85,000 a year to add $400,000 to EBITDA in the first year, and more later. That's a five-to-one return. Luna: If these conversations have moved your work forward in some small way, a couple of dollars a month makes a real difference. Buy me a coffee dot com slash fexingo keeps the show ad-free and independent. Lucas: Yeah, it genuinely helps. And now back to that concrete supplier — one more detail I want to highlight. The owner also used the procurement consolidation to negotiate better payment terms. He went from net 30 to net 60 with his top suppliers, which improved his working capital position. Luna: That's a double win. Better margins and better cash flow. Lucas: Exactly. The buyer loved that. They saw a business that not only had higher margins but also required less working capital to operate. That's a recipe for a high multiple. Luna: So if someone is listening and thinking, 'I don't have a concrete supplier, but I have a similar fragmentation in my business' — what should they do first? Lucas: First, pull your purchasing data for the last 12 months. Look at how many suppliers you have, how many orders per supplier, and what the average order size is. If you see a long tail of small orders, that's your opportunity. Then pick your top three to five suppliers and ask for a consolidated pricing proposal. Luna: And be ready for pushback from your team. Lucas: Absolutely. But if you can frame it as a way to build a more valuable business, most people will get on board. And the payoff, as we've seen, can be life-changing. Luna: Alright, that's a solid takeaway for anyone preparing for an exit. Thanks, Lucas. Lucas: Thanks, Luna. See you next time.