Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Pool Service Sold at 18x EBITDA with Annual Contracts
Transcript
- Lucas: Luna, I want to talk about a sale that I think breaks a lot of the rules we've discussed on this show. A pool service company in Florida. Not software, not manufacturing, not even a high-end service like consulting. Pool cleaning. And it sold for 18 times EBITDA. Luna: Eighteen times? For a pool business? That's higher than most SaaS companies we've covered. Lucas: Exactly. And the reason is pretty instructive for anyone running a service business. The company was called ClearWater Pool Services — four employees, two trucks, based in Naples. The owner, a guy named Mark, started it twelve years ago with a single truck and a borrowed pressure washer. Luna: Right, so what was the magic? Was it some kind of tech platform? Lucas: Not really. They used a basic routing app and QuickBooks. No proprietary software. What Mark did was convert his entire customer base from month to month service to annual contracts. Not multi-year — just annual, automatically renewing, with a 30-day cancellation window. Luna: And that was enough to get to 18x? I've seen annual contracts in pest control and landscaping, but those usually trade at 10 to 12 times. Lucas: Here's the detail. Mark didn't just switch the billing frequency. He restructured the service itself. Instead of billing per visit, he charged a flat annual fee of $1,200 per customer — that's $100 a month — for weekly service from March through October, and bi-weekly the rest of the year. Customers paid upfront or in two installments. Luna: So the cash flow was predictable, but also front-loaded. That must have been attractive to buyers. Lucas: Hugely. By the time he decided to sell, ClearWater had 200 annual contracts. That's $240,000 in recurring revenue. But the real metric — the one that got buyers excited — was the renewal rate. Ninety-five percent. Over three years, only ten customers didn't renew. Luna: That's incredibly sticky. How did he keep retention that high? Most service businesses lose a chunk every season. Lucas: He did two things. First, he bundled a spring chemical treatment and a winterization service into the annual fee — so customers felt like they were getting more value than paying per visit. Second, he hired a part-time customer service person just to handle renewals and follow-ups. That person would call every customer 60 days before renewal to confirm, answer questions, and upsell small extras like leaf removal. Luna: A dedicated retention person on a part-time salary. Probably cost him $20,000 a year, but kept $200,000 in recurring revenue locked in. Lucas: Exactly. And the buyer — a regional pool services roll-up called AquaGuard — was willing to pay a premium because they could drop those customers into their existing route system and keep the retention without adding overhead. They calculated that acquiring those 200 customers through direct marketing would have cost them $1,500 per customer in ad spend. So paying $1.2 million for the whole company — which is 5x the annual recurring revenue — was actually cheaper per customer than going out and buying leads. Luna: So the buyer's logic wasn't just about EBITDA. It was about customer acquisition cost. That's a different lens. Lucas: That's the key insight. The $1.2 million purchase price breaks down to $6,000 per customer. Compared to $1,500 in ad spend to get a new customer, that seems high. But the seller's customers had a proven 95 percent renewal rate. A new customer from ads might have a 60 percent first-year retention. So the 'quality-adjusted' acquisition cost was actually lower. The buyer was paying for certainty. Luna: Right, so the multiple wasn't really about EBITDA — it was about the quality of the revenue stream. That's why service businesses with recurring contracts can trade at multiples that look like tech companies. Lucas: Yes. And Mark's business was also very clean operationally. He had no debt, owned his trucks outright, and leased a small storage yard for $500 a month. The only real liability was a single employee who'd been there nine years and was earning $55,000. The buyer kept him on. Luna: So what was the final sale price and multiple breakdown? Give me the numbers. Lucas: Sure. Trailing twelve-month EBITDA was $67,000. Sale price was $1.2 million. That's 18x EBITDA. But again, the buyer was really paying for the recurring revenue. They valued the company at 5x annual recurring revenue — which is $240,000 — and that's a common benchmark in service roll-ups. Luna: So if you're a service business owner listening, the lesson isn't 'get your EBITDA up.' It's 'get your recurring revenue locked in and prove your retention.' That's what commands the premium. Lucas: Exactly. And the beauty is, it doesn't take fancy software. Mark used a simple spreadsheet to track renewals and a part-time employee to make phone calls. The barrier to entry is discipline, not technology. Luna: I'm curious — did Mark have a broker, or did he sell direct? Lucas: He used a broker. A local M&A advisor who specialized in service businesses. The broker helped him prepare the financials and, crucially, coached him on how to document the renewal rate and customer lifetime value. Mark had never calculated LTV before. The broker showed him that his average customer stayed four years, so LTV was about $4,800. That was a big selling point. Luna: So documentation matters as much as the numbers themselves. If you can't prove it, it doesn't count. Lucas: Right. And Mark was able to show three years of renewal data. That's the minimum most buyers want. If you're thinking about selling in the next two or three years, start tracking renewals now. Even if you're month to month, you can start offering an annual discount to convert people. Luna: Let's talk about the risks. What if the buyer had come in and lost that retention? The multiple would have collapsed. Lucas: That's a real risk. AquaGuard mitigated it by keeping the same customer service person and the same routing system for the first year. They also put a earn-out clause in the contract — $100,000 additional if retention stayed above 90 percent in year one. Mark was incentivized to help transition smoothly. Luna: So the earn-out protected the buyer and gave the seller a reason to stay engaged. That's smart structuring. Lucas: It is. And in the end, Mark walked away with $1.1 million cash at closing and the earn-out. He now lives part-time in Costa Rica and consults for other pool companies on setting up annual contracts. Luna: That's a great outcome. And it's replicable. I'm thinking about all the service businesses that operate month to month — landscapers, cleaners, handymen — they could probably double their sale price just by converting to annual contracts and proving retention. Lucas: Absolutely. And that's the takeaway. You don't need to be a tech company to get a tech-like multiple. You just need to convince a buyer that your revenue is as predictable as a software subscription. And the best way to do that is with contracts and renewal data. Luna: Speaking of value — if today's conversation added something to your thinking, we should mention that listener support is what keeps this show ad-free and independent. Lucas: Yeah, if this episode was worth a coffee to you, that's the link. Buy me a coffee dot com slash fexingo. It's the smallest possible ask, and it genuinely helps us keep doing deep dives like this one. Luna: No pressure at all — just a simple way to say thanks if you found it useful. And we appreciate every single one. Lucas: Alright, back to the pool business. One more thing I want to highlight: the buyer's perspective. AquaGuard had been acquiring pool companies for four years. They had a playbook. They looked for companies with at least 150 annual contracts, a renewal rate above 85 percent, and clean financials. ClearWater exceeded all three. Luna: So there's a threshold. You need critical mass before buyers get interested. Lucas: Right. 150 contracts is about $180,000 in annual recurring revenue. That's enough to justify a dedicated acquisition team's time. Below that, you're competing with individual buyers who might not pay the same multiple. Luna: What about geography? Was being in Florida a factor? High demand for pool services? Lucas: It helped. Florida has a ton of pools and a long season. But the same model works in any climate. There are pool companies in Minnesota that do well with annual contracts by including winterization and spring opening. The key is bundling services that make the annual fee feel like a no-brainer. Luna: So it's about productizing the service. Turning a commodity into a subscription. Lucas: Exactly. And that's a skill any service business owner can learn. Mark didn't have an MBA. He just noticed that his month to month customers were less loyal and harder to predict. The annual contract simplified his life and made his business more valuable. Luna: I love that. It's a real-world example of how operational changes drive valuation. Lucas: Alright, that's the pool story. Next time, we'll look at a completely different sector — maybe a niche manufacturing business that used a similar contract model to boost its multiple. But for now, if you've got a service business, start thinking about how you can lock in your customers for a year. Luna: And if you want to dig deeper into the ClearWater sale, we've got a link to the broker's case study in the show notes. Thanks for listening.