Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Pool Maintenance Business Sold at 12 Times EBITDA
Transcript
- Lucas: So, Luna, I was looking at a deal that closed back in June, a pool maintenance company, and it went for twelve times EBITDA. That number jumped out at me because pool service is about as seasonal and labor-intensive as it gets. Luna: Twelve times for pool maintenance? That seems high. I'd have guessed six or seven, maybe eight with recurring contracts. Lucas: Right, and that's exactly why I wanted to dig into it. The multiple is only part of the story. The real question is what the owner did over five years to make that multiple credible to a buyer. Luna: Okay, so walk me through it. What made this business different? Lucas: First, the customer base. This company had around eight hundred residential accounts, but they'd been shifting toward commercial contracts — apartments, HOAs, small hotels. By the time of sale, commercial was fifty-five percent of revenue. And those contracts are typically multi-year, with automatic renewal clauses. Luna: That's a big shift. But commercial pool service is a different beast. More chemicals, more liability, more demanding clients. Lucas: Exactly. And that's where the seller had to prove the operations could handle it. They had invested in routing software and trained techs on commercial chemical treatment. So when a buyer looked at the books, the higher revenue per account didn't come with a scary jump in churn. Luna: So the multiple wasn't just about the contracts, it was about the systems behind them. Lucas: Right. But there's another piece that I think is underrated: the labor side. Pool service is a people business, and buyers worry about reliance on the owner and a few key techs. This seller had a general manager in place for three years, and a lead tech who'd been with them for seven. They both stayed post-sale, with retention bonuses tied to hitting revenue targets. Luna: That's smart. Because if I'm a buyer, the biggest risk is that the key people walk out the door on day one. Lucas: Exactly. And the owner also did something specific with the route density. They consolidated routes so each tech could handle more stops per day. That pushed gross margin from thirty-two percent to forty-one percent over two years, without raising prices much. Luna: That's a big jump. How did they do that without alienating the customers? Lucas: They redrew the routes based on geography and customer frequency. Some customers were getting weekly visits when they only needed every two weeks, and the data showed it. So they matched service frequency to actual pool usage and water chemistry needs. Most customers didn't even notice, and the ones who did were happy to save a bit on the service fee. Luna: So they essentially optimized the recurring revenue model. That's a classic private-equity play, but applied to a small business. Lucas: And that's what the buyer, a regional roll-up platform, was looking for. They saw a business that had already done the operational heavy lifting, and they could plug it into their back-office and continue expanding. The seller didn't have to be a genius, he just had to build a business that didn't rely on him. Luna: Before we go deeper into the buyer's perspective, let's pause for a second. If you're finding this episode useful, the way we keep the podcast ad-free is through listener support. You can buy us a coffee at buy me a coffee dot com slash fexingo. It's a small gesture that keeps these conversations going. Lucas: Yeah, genuinely, that's what keeps us independent. And we appreciate every single one of you who's done that. Now, back to the deal. Lucas: So the buyer was a platform that already owned three other pool service companies in neighboring states. They had their own chemical purchasing power and a call center. To them, this acquisition was about adding density in a contiguous market, not just adding revenue. Luna: That explains why they paid up. They saw synergies that a standalone buyer wouldn't. Lucas: Exactly. But here's the nuance: the multiple was twelve times trailing EBITDA, but there was a seller note involved. The seller agreed to finance two million dollars of the purchase price at six percent interest over five years. That note is what got the deal done. Luna: So the effective multiple was lower if you factor in the risk and the time value of money. Lucas: Right. The seller is effectively taking on some of the risk that the business performs as projected. That's a big deal. If the business stumbles, the seller doesn't get paid in full. So the headline multiple is a bit misleading. The real price depends on the earnout and the note. Luna: I think a lot of owners hear 'twelve times' and get dollar signs in their eyes, but they don't realize the structure matters just as much. Lucas: And that's the lesson. In a deal like this, the buyer is paying for certainty. They want a business that can run without the owner, with contracts that renew, and with a team that stays. The seller who can show that gets a higher multiple — even in a gritty, seasonal business like pool maintenance. Luna: So what's the takeaway for a listener who owns a service business? What should they focus on if they want to sell in the next three to five years? Lucas: I'd say start with customer concentration. If any single customer is more than, say, ten percent of revenue, that's a red flag. This pool company had no customer above four percent. That's a huge comfort to buyers. Luna: And what about the commercial versus residential mix? Is that always the right move? Lucas: Not always. It depends on your market and your ability to service those accounts. But generally, commercial contracts are stickier and less price-sensitive. The trick is to prove you can handle the operational complexity. If you can't, the multiple won't come up. Luna: And the seller here had a fifty-five percent commercial mix. That was a deliberate strategy. Lucas: Deliberate, and it took them about four years to get there. They didn't flip a switch. They added one or two commercial accounts at a time, and trained their techs as they went. It's a patient build, but it pays off at the exit. Luna: I love that this wasn't some tech startup or a business with a fancy app. It's pool guys with trucks and chlorine. And it still sold at twelve times. Lucas: That's the point. The multiple is not about the industry, it's about the business quality. A well-run pool service company can command a higher multiple than a poorly run SaaS company. Buyers care about cash flow, risk, and growth — not whether you're cool. Luna: So if I'm a business owner, what's the one thing I should do this year to boost my sale multiple? Lucas: I'd say document your standard operating procedures. The buyer is going to ask, 'How does this business run?' If you can hand them a manual that shows the recurring revenue model, the routes, the customer onboarding process, and the hiring playbook, they'll be a lot more comfortable paying a higher multiple. Luna: And that's something you can start today, regardless of your industry. Lucas: Exactly. It's not glamorous, but it's what separates a business that sells at a premium from one that sells at a discount. The pool company didn't have a secret formula. They just did the boring things well, and the market rewarded them. Luna: Well, and they had a good broker, I assume. Lucas: They had a broker who specialized in service businesses and knew the roll-up buyers. That made a big difference in positioning the deal. But even a good broker can't sell a business that's not prepared. Luna: So what should a listener who's thinking about selling do first? Call a broker? Or start with the financials? Lucas: I'd say start with a self-assessment. Look at your customer concentration, your recurring revenue percentage, and your dependency on the owner. If any of those are out of whack, start working on them before you talk to a broker. You want to enter the market from a position of strength. Luna: And that could take years, not months. So it makes sense to start early. Lucas: Yes. The owner here started planning four years out. He didn't know he'd sell to a roll-up, but he knew he wanted options. So he systematically reduced his personal involvement, built a management team, and improved margins. By the time he decided to sell, he had multiple offers. Luna: Multiple offers. That's the dream scenario for any seller. Lucas: It is, and it came from having a business that didn't depend on him. When a buyer sees that, they're willing to pay for the certainty. And that's the story of how a pool maintenance company sold at twelve times EBITDA. Luna: And now I'm wondering, when you mentioned the seller note and the earnout, how common is that in deals under, say, ten million? Lucas: It's more common than people think. I'd say over half of all small business sales involve some form of seller financing or earnout. The key is to structure it so it aligns incentives, not so the buyer can claw back value. In this case, the note was straightforward and the earnout had achievable targets. Luna: So, for a seller, it's about understanding that the headline multiple is just the starting point for negotiation. Lucas: Exactly. If you walk in thinking you're getting twelve times, and the structure is fifty percent cash, twenty-five percent note, and twenty-five percent earnout, you need to evaluate the real risk. A good advisor can help you model that. Luna: And that's the kind of nuance we like to dig into. So, Lucas, if a listener is in a similar position, what's your one piece of advice on where to start? Lucas: I'd say look at your three most important customers and your three most important employees. If any one of them can sink you, fix that first. Then work on your contracts and your systems. That's the foundation for a higher multiple.