Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Tire Shop Sold at 8x EBITDA With a Two-Week Due Diligence
Transcript
- Lucas: So there's this tire shop in Canton, Ohio — five bays, seven employees, the owner's dad started it in 1987. It sold last November for 8 times EBITDA. Nothing super high-tech about the business. But the thing that made the deal unusual is the due diligence took exactly two weeks. Luna: Two weeks? That's basically unheard of for a business that size. Most deals I've seen, due diligence drags out for 45 to 60 days minimum. Lucas: Exactly. And this wasn't a tiny transaction either — it was around a $4 million enterprise value. So you'd expect a buyer to want a full quality of earnings, customer concentration analysis, fleet maintenance records, the works. But the seller had a strategy that basically forced the buyer's hand. Luna: What did they do differently? Lucas: They built a complete data room before they ever talked to a buyer. I mean really complete. Tax returns going back five years, three years of bank statements, monthly P&Ls by location, payroll records, lease agreements, environmental reports for the property, a customer list with purchase frequency, vendor contracts — everything. The owner's son, who was the operations manager, spent about 200 hours over six months just organizing and scanning documents. Luna: So the buyer showed up and basically had nothing to ask for? That's a power move. Lucas: It is. The buyer was a regional roll-up platform that had acquired three other auto service chains in the Midwest. They sent a team of two — a CPA and an operations person — and they spent a week in the data room, another week visiting the shop and interviewing the manager. By day fourteen, they had enough confidence to waive the rest of the exclusivity period. Luna: Waiving exclusivity — that's risky for the buyer. Usually you want that 45-day window to make sure you're not getting outbid. Lucas: Right, but the seller had a clause that said if the buyer didn't complete due diligence within 21 days, the seller could terminate and keep the breakup fee. It was a small fee — $50,000, basically covering the seller's legal costs. But it put real pressure on the buyer to move fast. Luna: So the buyer's calculus was: either spend two weeks and get a clean look, or risk losing the deal to another buyer who was already circling. Lucas: Exactly. And there was another buyer — a larger private equity firm that was interested but wanted a full 60-day diligence. The seller actually used that as leverage. They told the roll-up platform, 'Look, we have a term sheet from a PE firm, but they want two months. If you can match the price and close faster, you get the deal.' Luna: And the roll-up platform said yes. But I wonder — did the seller leave money on the table by not going with the PE firm? PE firms often pay higher multiples. Lucas: That's the million-dollar question. The PE firm was offering 8.5 times EBITDA, but with a longer diligence and a lower earnout cap. The roll-up offered 8 times, all cash, no earnout, close in 30 days. The seller ran the math and decided the bird in the hand was worth more. Plus, they avoided about $80,000 in advisory fees that would have come from a longer process — lawyers, accountants, investment bankers. Luna: So net-net, the 8x deal might've been better than the 8.5x after fees and time value of money. Lucas: That's how the seller saw it. And the speed also meant the buyer didn't have time to nitpick small things. In a normal diligence, the buyer's advisors will find $50,000 worth of adjustments — maybe the owner's salary was too high, or there was a one-time expense that should be added back. In a two-week sprint, the buyer doesn't have the bandwidth to go that deep. They focus on the big risks. Luna: What was the biggest risk they did focus on? Lucas: Customer concentration. Turns out, about 40 percent of the shop's revenue came from a single fleet account — a local trucking company that sent all its vehicles there for tires and alignments. If that contract disappeared, the business would take a huge hit. The buyer spent a lot of time verifying that contract, talking to the fleet manager, checking the renewal terms. Luna: And the contract held up? Lucas: It had two years left, auto-renew, and the fleet manager said they'd been with the shop for 12 years. The buyer was satisfied. But that's exactly the kind of thing that would have taken three weeks to get comfortable with in a normal process. Because the seller had the contract and the fleet manager's contact info ready in the data room, the buyer could make a few phone calls and check it off. Luna: So the lesson here isn't just 'have your documents ready.' It's 'have your documents ready in a way that anticipates exactly what a buyer will worry about.' Lucas: That's it. The seller here didn't just dump a bunch of PDFs into a Dropbox folder. They organized the data room by risk category — customer concentration, lease renewal, environmental, employee retention. Each category had a summary page with the key facts and then supporting documents. The buyer's CPA later told the broker it was the cleanest data room he'd ever seen. Luna: That kind of preparation is rare. Most small business owners are running the business, not preparing for an exit. It takes a real discipline to do that. Lucas: And if today's episode helped you think about your own business's exit readiness in a concrete way, the way these conversations stay ad-free is through listener support. You can find us at buy me a coffee dot com slash fexingo. Every contribution helps us keep bringing you specific, nuts and bolts deal stories like this one. Luna: Yeah, it really does make a difference. We hear from listeners who've used these episodes to structure their own deals, and that's exactly why we do this. Lucas: So back to the tire shop — after the buyer waived exclusivity, the next step was the purchase agreement. The seller's lawyer had already drafted the main terms based on the letter of intent, so there wasn't much to negotiate. The whole thing from signed LOI to closing took 34 days. Luna: That's fast. But I'm curious — did the seller use a broker? Or was this all in-house? Lucas: They used a small M&A advisory firm that specializes in auto service businesses. The broker charged a flat fee — $60,000 — rather than the typical 10 percent of the sale price. So the broker's incentive was to close fast, too. That alignment helped accelerate the process. Luna: Flat fee brokers are rare for deals under $10 million. Most want a percentage. How did the seller find that broker? Lucas: Through a referral from their accountant. The broker had done three other tire shop deals in the region. That niche experience was key — the broker knew exactly what documents to gather, what adjustments buyers would look for, and how to structure the data room. Luna: So the broker's expertise directly enabled the two-week diligence. Without that, the seller might have fumbled. Lucas: Probably. But the seller also had a secret weapon — the owner's son, the operations manager. He was the one who actually organized the data room. He knew the business inside out. When the buyer's team asked questions, the son could answer immediately without going back to look up records. That kind of institutional knowledge isn't something you can hire. It's something you have to cultivate before you decide to sell. Luna: Which raises a question: if the son was so critical, did the buyer require him to stay on after the sale? Lucas: They did. The son signed a three-year employment agreement with a retention bonus tied to EBITDA targets. That was actually one of the few points of negotiation — the seller wanted a shorter commitment, the buyer wanted longer. They settled on three years with a $100,000 bonus at the end if the shop hit 105 percent of projected EBITDA. Luna: So the son is now essentially a key man in the roll-up platform's growth strategy. That's a good outcome for him — and for the seller, who can sleep knowing the business is in good hands. Lucas: Exactly. And the seller himself — the father — he transitioned to a part-time consulting role for six months, then fully retired. He took about $3 million in cash after taxes and fees. The rest of the purchase price was in the form of a seller note — $1 million at 6 percent interest over five years. Luna: A seller note? That's interesting. Usually buyers want all cash for a fast close. Why did they accept a note? Lucas: Because the seller offered a discount on the purchase price in exchange. They agreed to 8x EBITDA instead of 8.25x if the buyer used a note for part of the consideration. The buyer was capital-constrained from their previous acquisitions, so the note helped them conserve cash. And the seller got a steady income stream for five years, which actually helped with his personal tax planning — he could defer some of the capital gains. Luna: That's a creative structure. Most sellers want all cash and walk away. But this family thought through the tax implications. Lucas: They hired a good tax advisor. The CPA suggested an installment sale, which allowed the seller to report gains proportionally over the five years. That kept him in a lower bracket each year. Without that planning, he would have hit the top bracket in the year of sale. Luna: So the takeaway from this episode isn't just about data rooms. It's about thinking through the entire deal structure — the financing, the tax, the key person retention — before you even go to market. Lucas: Exactly. The tire shop owner spent six months preparing, and that preparation paid off in a faster, cleaner deal. Not every business can replicate a two-week diligence, but any owner can start by identifying the three biggest risks a buyer would see and assembling the documents that address them. That alone could cut your sale timeline in half.