Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Pest Control Firm Sold at 18x EBITDA with Annual Contracts
Transcript
- Lucas: Luna, there's a pest control company in suburban Ohio — four trucks, six employees, a single owner — that just sold for 18 times EBITDA. That's not a typo. Luna: Wait — 18 times? I know we've talked about cleaning companies and landscaping hitting 15 or even 20 times, but those usually have some recurring revenue hook. What was the trick here? Lucas: Annual contracts. About 85 percent of their customers were on a 12-month service agreement, auto-renewed unless the customer canceled. The owner started pushing those about three years before he put the business on the market. Before that, it was mostly one-off calls — you know, 'I see a mouse, come spray.' Luna: Right — and that's exactly the kind of revenue that makes a buyer nervous. Sporadic, seasonal, impossible to forecast. Lucas: Exactly. The owner told his broker he was tired of the feast or famine cycle. So he introduced a simple plan: customers pay a flat fee per quarter, get four scheduled treatments, plus one emergency visit if needed. The key was making it automatic — credit card on file, billed every three months unless they opt out. Luna: And customers actually went for it? I feel like people hate being locked into contracts. Lucas: He offered a discount — roughly 15 percent off the one-off price — and a satisfaction guarantee: if the pest comes back between treatments, they come out free. The renewal rate ended up around 92 percent annually. Once someone is on the plan, they tend to stay because it's convenient and they don't have to remember to call. Luna: So the annual contract effectively turned pest control into a subscription business. That's exactly what a strategic buyer — say, a larger regional roll-up — would pay up for. Lucas: And that's who bought it: a mid-sized pest control group that already operates in four states and had been looking for contract-heavy targets. The purchase price was $4.2 million, net of debt. The owner walked away with $3.8 million after broker fees. Luna: What was the EBITDA before the contract shift? Do we know? Lucas: The broker shared the numbers with us. About three years before the sale, EBITDA was around $180,000 on roughly $600,000 in revenue — that's a 30 percent margin, which is decent for a small service business. But the revenue was lumpy. In the final year before sale, revenue hit $1.1 million and EBITDA was $280,000. The margin actually compressed slightly because he added a part-time admin to manage renewals and billing. Luna: So the margin dipped a bit, but the multiple more than made up for it. At $280,000 times 18, that's the $5 million enterprise value — wait, how did they get to $4.2 million? Lucas: Good catch. The business had about $800,000 in debt — that truck fleet and some equipment. So enterprise value of $5 million minus debt equals $4.2 million equity value. And the buyer assumed the existing contracts, so there was no working capital adjustment needed. Luna: That debt structure is interesting. A buyer who's a roll-up can often refinance that at better rates, so they're not as spooked by the leverage. Lucas: Right. And here's another detail: the owner didn't have a non-compete that was super restrictive — just two years and 50 miles. That made the deal more attractive because the buyer knew the owner's customers would stick with the company, not follow him if he started a new business. Luna: So for a small business owner listening: the big takeaway seems to be that converting even a portion of your customer base to a recurring model can dramatically shift how your business is valued. It's not just about revenue size — it's about revenue quality. Lucas: Exactly. And the owner started with just a simple email to his existing customers, offering the annual plan. Over six months, about 40 percent of them converted. The next year, he made the annual plan the default for all new customers, with a one-off option still available but priced higher. By year three, 85 percent were on contract. Luna: That's a pretty straightforward playbook. I'm curious — did he use any software to manage the recurring billing, or was it manual? Lucas: He used a field service management platform called ServMan — about $200 a month. That handled scheduling, billing, and automated email reminders for renewals. The buyer said the systems were clean enough that they didn't need to rip and replace anything. Luna: Clean systems are a huge factor in valuation. A messy QuickBooks file can knock a half-turn off the multiple. Lucas: Absolutely. And this business had a three-year track record of clean P&Ls with no personal expenses mixed in. The owner paid himself a market-rate salary and took dividends on top. That's the kind of discipline that makes a buyer comfortable paying 18 times. Luna: You know, it's funny — a few years ago, pest control was seen as a commodity business. You spray, you leave, you hope they call again. Now it's becoming a recurring revenue darling. Lucas: And that shift is happening across home services — lawn care, pool cleaning, even gutter cleaning. But pest control has a natural advantage: pests don't go away. There's always a need, and the annual contract just makes it automatic. Luna: Before we wrap, I want to mention something that's been on my mind. We put a lot of work into these episodes — reaching out to brokers, verifying numbers, talking to owners. It's genuinely a labor of love. Lucas: Yeah, and it stays ad-free because listeners like you help support it. If you've ever gotten a useful idea from the show — a way to structure a contract, a tip on negotiating a multiple — a couple of dollars a month is genuinely what keeps these going. Luna: Exactly. So if you're able, buy me a coffee dot com slash fexingo. Even a small amount makes a real difference. Lucas: And we really mean it — we don't have corporate sponsors, no banner ads, no 'this episode is brought to you by.' It's just us and the people who find value in the show. Luna: Alright, back to the numbers. Lucas, you mentioned the buyer was a regional roll-up. Do you know if they've done other deals like this? Lucas: They have. In the past two years, they've acquired six other pest control companies, all with at least 60 percent annual contract penetration. Their target multiple range is 14 to 22 times, depending on contract length and renewal rates. So this one landed right in the sweet spot. Luna: So if you're a pest control owner thinking about selling, the message is clear: start pushing annual contracts now. It might take 18 to 24 months to get your mix where buyers want it, but it's a proven path. Lucas: And it's not just pest control. We're seeing the same dynamic in HVAC, plumbing, electrical — any trade where you can turn a reactive call into a proactive maintenance plan. The valuation uplift is real. Luna: One more thing — the owner of that Ohio company, what's he doing now? Did he stay on? Lucas: He stayed as a regional manager for six months to transition the accounts, then he left. He told his broker he's planning a long road trip with his wife. No new business in the works, at least for now. Luna: Good for him. That's the dream, right — build something, sell it for a life-changing number, and walk away. Lucas: Absolutely. And the blueprint is out there: clean books, recurring revenue, and a buyer who sees the value. That's the story we try to tell every week. Luna: And on that note — we'll be back next time with another deal. Thanks for being here.