Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why This Auto Repair Shop Sold at 6x EBITDA with Recurring Contracts
Transcript
- Lucas: So there's this auto repair shop in a mid-sized Ohio city, nothing fancy, three bays, five mechanics, and it just sold for six times EBITDA. Not four, not five, six. Luna: Six times for an auto shop? That's not typical. I've seen those go for two or three times, maybe four if the equipment is new. Lucas: Right, and that's exactly why I wanted to dig into it. The multiple comes down to one thing: about seventy percent of the revenue was under contract with local fleet operators. Delivery vans, plumbing companies, a couple of municipalities. Those contracts ran two to three years and were auto-renewing. Luna: So the buyer wasn't just buying a repair shop, they were buying a book of recurring revenue. That changes the math completely. Lucas: Exactly. And the price tag was around two point four million dollars. The shop was doing just over a million in annual revenue, with roughly four hundred thousand in EBITDA. So you're looking at a six times multiple on the EBITDA. But here's the thing: the equipment and the real estate were maybe worth four hundred thousand. The rest was the contracts. Luna: So the buyer paid two million over the hard assets. That's a big bet on those contracts sticking. Lucas: And that's the interesting part. The seller didn't just hand over a customer list. Each contract had minimum monthly volumes, so even if a fleet ran fewer vehicles, they still paid a base fee. And there were penalties for early termination. So the revenue was sticky in a way that most repair shops never achieve. Luna: I can see why a buyer would pay up for that. It's almost like buying a subscription business, but with grease under the fingernails. Lucas: That's a great way to put it. And we should say, this wasn't some giant private equity deal. It was a local buyer, a former fleet manager who knew the industry. He had the operational chops to retain the contracts and the relationships. That's part of why the seller felt confident taking a little less cash upfront. Luna: Less cash upfront? How did the deal actually get structured? Lucas: So the buyer put down about one point two million in cash, and the seller carried a note for the remaining one point two million over five years at six percent interest. The note was backed by the contracts themselves, so if the fleet business churned, the seller would feel it. That's a key point for any seller thinking about financing a deal: the earnout or the note is only worth what the revenue does. Luna: So the seller was essentially betting on the recurring revenue too. If those contracts renew, they get paid. If not, they're left holding the bag. Lucas: Right. And that's why the due diligence was so heavy on the contract quality. The buyer's attorney went through every single fleet contract, checked the auto-renewal clauses, the minimums, the termination penalties, and even called a few fleet managers to see if they were happy. That's a level of scrutiny you don't see in your typical four times ebitda deal. Luna: Happy customers, that's a whole other layer. So what made those fleet managers stick with this shop instead of switching to a cheaper competitor? Lucas: A few things. The shop had dedicated bays for fleet vehicles, so a van could be in and out in a day. They also offered a monthly preventive maintenance package that included oil changes, tire rotations, and brake inspections, all for a flat fee. That gave the fleet manager predictable costs and less downtime. And the shop had a parts arrangement with a local distributor that kept costs down. Luna: So it wasn't just the contracts, it was the operational model behind them. That's what made the revenue defensible. Lucas: Exactly. And here's a number that really tells the story: the fleet segment had a ninety-two percent renewal rate over the last three years. That's the kind of stat that makes a buyer comfortable paying six times EBITDA. Compare that to the retail side of the business, which was maybe twenty percent of revenue, and churned constantly. Luna: So the retail side almost dragged down the multiple, right? If the whole business was retail, you'd be looking at two or three times, maybe. Lucas: Right. And the seller actually considered selling the retail side separately, but it wasn't worth the hassle. The buyer wanted the whole thing, because the retail side could be cross-sold with the fleet contracts. Any retail customer who owns a van or a truck is a potential fleet contract down the line. Luna: That's smart. So the buyer saw an upside they could unlock, not just a static cash flow. That often justifies a higher multiple. Lucas: Now, one thing that really helped the deal along, and I want to be honest about this, is that the seller had kept the books in impeccable shape. Every contract was in a CRM, every invoice was tagged to a specific vehicle, and the monthly reports broken down by segment. That gave the buyer confidence in the numbers. A lot of shop owners run their business off a shoebox, and that kills the multiple. Luna: So if you're listening and you own a service business, that's the takeaway: clean books and documented contracts can add a multiple point or two all by themselves. Lucas: Absolutely. And that's actually why we're able to bring you these stories every week. A handful of listeners chip in a few bucks a month through buy me a coffee dot com slash fexingo, and that literally funds the time we spend digging into deals like this. No ads, no sponsors, just listener support. It's a small group, but it keeps us going. Luna: Yeah, and we appreciate every single one of them. It's what lets us stay independent and dig into the numbers that really matter. Lucas: So back to this deal. The transition period was ninety days, and the seller stayed on as a consultant for another six months. That was written into the purchase agreement, not just a handshake. The buyer wanted the seller to personally introduce him to every fleet manager and walk him through the maintenance schedules. Luna: That's a longer transition than I usually hear about. Most deals I've seen have a month or two of training, and then the seller is gone. Lucas: Because the buyer knew the contracts were the value, and he wanted to make sure the relationships transferred. Fleet managers are people, and they do business with people they trust. If the seller had just handed over the keys and left, a lot of those fleet managers might have started looking elsewhere. Luna: So the seller's ongoing involvement was almost as important as the contracts themselves. Did the seller get any extra compensation for that consulting period? Lucas: He did, actually. On top of the note payments, the consulting agreement paid him five thousand a month for six months, plus a small percentage of any new fleet contract he brought in during that period. That aligned his incentives with the buyer's success. Luna: I love that. It's a win-win if the business grows, and it keeps the seller motivated to ensure a smooth handover. Lucas: And that's a structure we're seeing more of in Main Street deals. Buyers are willing to pay a higher multiple if the seller is willing to stay on and share the risk. It's not just about the number, it's about the deal structure. Luna: So what about the seller's life after the sale? That's a huge consideration for many owners. Lucas: He's actually started another business, a mobile repair service for commercial fleets. He's not retiring. He took some chips off the table, but he's still in the game. And that's common among serial entrepreneurs. They sell one business and immediately start another, because they love the building process. Luna: And the buyer? Any word on how the first year is going? Lucas: The deal closed in February, so we don't have a full year yet, but the feedback I've heard is positive. The fleet renewal rate has held steady, and the buyer has already signed two new contracts with small landscaping companies. He's also added a sixth mechanic, and he's talking about opening a second location focused exclusively on fleet work. Luna: That's the dream scenario for a buyer, right? You buy a cash-flowing business, keep the revenue, and then scale it up. Lucas: Yeah, and it's a great example of why recurring revenue is so attractive. It's not just the stability, it's the platform for growth. A buyer can look at that base of contracts and see a launchpad for new services, like mobile diagnostics or even a parts delivery program. Luna: So for a seller listening, what's the actionable takeaway? How do you start building that kind of recurring revenue before you're ready to sell? Lucas: Start small. Pick one customer segment and offer them a service contract with a monthly fee. It could be a maintenance plan, a supply agreement, or even a retainer for emergency service. The key is to make it predictable for both sides. Once you have a handful of those, you can show a buyer a track record, and that's when the multiple starts to climb. Luna: And it doesn't have to be a huge shift. Just shifting ten percent of revenue to contracts could already lift your valuation, right? Lucas: Absolutely. Even a small percentage of recurring revenue can signal to a buyer that the business has a moat. And if you can get it to thirty percent or more, you're in a whole different league. That's the difference between selling for three times and selling for six. Luna: It's amazing how a little bit of contract discipline can change the entire exit. I'm glad we dug into this one. Lucas: Me too. And if you're curious about your own business's multiple, or just want to hear more stories like this, you know where to find us. We'll be back next week with another deal from the trenches.