Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why a Pool Service Sold at 35x EBITDA with Route Data
Transcript
- Lucas: So today we are looking at a pool service business that sold at 35x EBITDA. Luna: Thirty-five times? That is way above the typical range for a service business. Lucas: It is. Most service businesses trade between 4x and 8x EBITDA. So when you see 35x, you know there is something structural driving that multiple. Luna: And that something is route data, right? Lucas: Exactly. This pool service operated in a dense suburban area in Florida. The owner had built routes that were incredibly efficient—each technician could service 12 to 14 pools per day, and the average travel time between stops was under 5 minutes. Luna: So the buyer was paying for the routes, not just the customer contracts. Lucas: Right. The buyer—a regional private equity roll-up platform—valued the business primarily on the density of its route network. They already owned three pool service companies in adjacent counties, and this acquisition allowed them to add 1,200 accounts without adding a single new truck. They just folded the routes into their existing dispatch system. Luna: So the 35x multiple makes sense if the buyer sees synergies. But how did the seller get the business to that point? Lucas: That is the interesting part. The owner spent two years optimizing routes before listing. He used a simple GPS tracking system to identify which customers were costing more to serve than they were worth. He dropped about 80 low-value accounts—houses with big lots, weird pool shapes, customers who were always late on payment—and replaced them with referrals in the same neighborhoods. He actually shrank revenue by about 6 percent, but gross margin went from 58 percent to 72 percent. Luna: He improved profitability by pruning the customer base. That is counterintuitive for a lot of owners. Lucas: It is. Most business owners think growth equals value. But what buyers are really paying for is predictable, high-margin recurring revenue. A pool service with 1,200 accounts and 72 percent gross margin is a much cleaner acquisition target than one with 1,500 accounts and 58 percent margin. The buyer knows exactly what the cash flow will look like. Luna: And the route density means lower labor costs per account. That is a hard operational advantage to replicate. Lucas: Exactly. The bar for entry is not just having a truck and a pool brush. It is having the density. And that is why private equity firms are willing to pay 35x for a business like this—they can apply the same playbook to other acquisitions and create a regional network that is really hard for a new entrant to compete with. Luna: It reminds me of the commercial laundry episode we did a few weeks ago. Route density drove that multiple too. Lucas: Same principle. Whether it is pool service, laundry, or pest control, the asset is the route. The physical work is almost secondary. If you have a dense route with annual contracts, you have a business that can be scaled without adding overhead. Luna: So for a small business owner listening who runs a service business, what is the first step to building route value? Lucas: Start with a route density map. Plot every customer on a spreadsheet or use a simple CRM. Then look at the geographic clusters. If you have customers spread across a 30-mile radius, you are leaving money on the table. Focus new marketing on the neighborhoods where you already have a presence. And consider dropping the outliers—the customers that take 45 minutes to drive to. Luna: That might feel like losing revenue, but the math works out if you replace them with nearby accounts. Lucas: And that is exactly what this pool service owner did. He went from 1,300 accounts to 1,200, but his net income actually went up because his fuel and labor costs dropped. And when he sold, the buyer paid a premium for that efficiency. Luna: It is a great case study. And speaking of practical takeaways, I want to mention something that a listener emailed us about last week. They said these episodes have helped them think differently about their own business exit planning. And that is exactly why we keep having these conversations. If the show has been useful to you in your work, one way to keep it going is to support it at buy me a coffee dot com slash fexingo. Lucas: Yeah, listener support is what keeps the show ad-free and focused on the specific numbers and cases. No corporate sponsors, no filler. Just the deal details. Luna: Exactly. So if that sounds like something you want to see continue, the link is buy me a coffee dot com slash fexingo. Now let's get back to the pool service. Lucas: So once the routes were optimized, the owner also locked in annual contracts with automatic renewal. That was the second big value driver. About 95 percent of his accounts were on auto-renew, which meant the buyer could project next year's revenue with very little uncertainty. Luna: That is huge for valuation. A buyer will pay a higher multiple for contracted revenue than for at-will customers. Lucas: Right. In the exit process, the broker ran a quality of earnings analysis and the buyer's team focused heavily on the contract renewal rate. They wanted to see that customers had been with the business for at least two years and that the churn rate was under 5 percent. The seller had that data ready. Luna: So preparation mattered as much as the operational improvements. Lucas: Absolutely. The seller had a clean data room with three years of financials, a customer churn report, and a route optimization summary. That transparency gave the buyer confidence to pay a premium. In fact, the initial offer was 27x EBITDA, but after due diligence confirmed the route density and contract stability, the multiple went up to 35x. Luna: That is a nice outcome. But not every seller gets that multiple bump. What made this one different? Lucas: The seller had a competitive process. He worked with a broker who ran a targeted auction. Three parties conducted due diligence, and the eventual buyer was the one who saw the most synergy. That competition pushed the price up. If you only have one buyer, you are negotiating against yourself. Luna: So the lesson is: build the route density, lock in contracts, and create a competitive process. Lucas: That is the playbook. And the pool service case is a perfect example of how a small business in a seemingly unsexy industry can generate a life-changing exit. The owner walked away with about $4.2 million after taxes. Luna: Not bad for cleaning pools. Lucas: Not bad at all. And the business is still running under the new owner, just with better software and a bigger fleet. The route density kept the business intact.