Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Pool Service Business Sold at 150x EBITDA with Recurring Chemical Contracts
Transcript
- Lucas: Luna, I want to talk about a deal that closed last month in Phoenix — a residential pool service company. Think basic stuff: cleaning, filter changes, opening and closing pools for the season. Nothing high-tech. Nothing proprietary. And it sold for 150 times EBITDA. Luna: Wait — 150 times? For a pool cleaning business? That sounds like a software multiple. Lucas: Exactly what I thought when I first saw the number. The company did about $2.8 million in revenue, maybe $400,000 in EBITDA. A traditional service business like that — no real barriers to entry, high labor turnover — you'd expect maybe 3 to 5 times EBITDA. This sold for 60 times. On a multiple basis, it's more like 150 times because they structured it with an earn-out that effectively pushed the total consideration higher. Luna: So what was the magic ingredient? Did they have some patented pool-cleaning robot? Lucas: Nothing like that. The magic was in the chemical contracts. This company had about 1,200 residential pool customers. And roughly 80% of them were on an automatic monthly chemical delivery program. You sign up once, they come every four weeks, drop off chlorine and algaecide, bill your card. The contracts automatically renew every year unless you cancel in writing 60 days before expiration. Luna: So basically subscription revenue, but for chemicals. That's recurring, it's predictable, and it's sticky because if you cancel, you have to find another supplier and rebalance your pool chemistry yourself. Lucas: Exactly. The cancellation rate was under 5% annually. The buyer — a roll-up platform backed by a private equity firm called Sundown Equity Partners — they already owned six other pool service companies in the Southwest. They were buying this one specifically for the chemical contract book. They didn't even want the trucks or the employees. They wanted the route density and the recurring chemical revenue stream. Luna: So the multiple is really for the subscription-like data, not the service business itself. That's similar to what we saw with the pest control and the janitorial deals earlier this year. Lucas: It's the same logic but with a twist. Pest control and janitorial have inherent recurring revenue because you need ongoing service. Pool chemicals are more discretionary — the homeowner could buy them at Leslie's or online. The fact that this company locked in that behavior through auto-renew contracts is what made it valuable. The buyer calculated that the lifetime value of a chemical customer was about $3,200. Their acquisition cost through local Facebook ads was around $80. So they were getting a 40-to-1 payback on customer acquisition. Luna: That's a strong unit economics story. But let me push back — 150 times EBITDA. Even if you factor in the earn-out, that implies the buyer expects massive growth or cost synergies. What's the risk that they overpaid? Lucas: It's real. The buyer is projecting they can cross-sell their existing pool service customers in Phoenix into chemical contracts, and vice versa. They think they can double the chemical customer base within two years without increasing fixed costs much. But if the local economy softens or if a big box retailer like Amazon starts offering pool chemical subscriptions, that 5% cancellation rate could spike. The multiple is pricing in a perfect rollout scenario. Luna: And that's the risk with these roll-up plays. The platform pays a premium based on synergy assumptions that may not materialize. We've seen it in the home services space before — companies like HomeServe or ServiceMaster. Lucas: Exactly. But the seller did very well. The owner was a guy named Mark, started the business in 2009 after the housing crisis. He was doing the chemical deliveries himself out of his pickup truck for the first three years. By the time he sold, he had 14 employees and was doing $3 million in revenue. He walked away with about $6 million in cash at close, plus another $4 million in earn-out if they hit certain retention targets over the next three years. Luna: That's a life-changing exit for a guy who started by driving around Phoenix with chlorine jugs. And it shows that the key to a high multiple isn't necessarily technology or IP — it's recurring revenue and data about customer behavior. Lucas: Speaking of which — you know, we talk about these deals every week, and we deliberately keep the podcast ad-free. We think the analysis should speak for itself. If these conversations have helped you think about your own business or a potential exit, and you want to support that, there's a link buy me a coffee dot com slash fexingo. It's a simple way to keep this going without any corporate interruptions. Luna: Yeah, we've always felt that sponsored segments would break the rhythm of digging into the actual deal mechanics. So if you appreciate that, the coffee link is there. No pressure, just an option. Lucas: Right. So back to Mark's deal — one more interesting detail. The earn-out was tied specifically to the chemical contract renewal rate. If that rate stayed above 92% for three years, the earn-out paid out in full. If it dropped below 80%, the earn-out was zero. So Mark had a strong incentive to hand over the business in a way that kept customers happy. Luna: That's smart deal design. It aligns the seller's post-close behavior with the buyer's value thesis. Did Mark stay on as a manager? Lucas: He stayed for six months as a consultant, helping with the transition. Then he's out. He's 52, he said he's going to buy a boat and sail around the Caribbean. He told the broker, 'I'm done with pools.' Luna: Good for him. So what's the takeaway for a small business owner listening? If you run a service business, can you create a subscription-like component that unlocks a higher multiple? Lucas: Absolutely. Think about what recurring element you can add — it could be consumables, it could be a maintenance plan, it could be a warranty renewal. The market is paying a premium for predictable, recurring revenue streams. And it doesn't have to be software. Pool chemicals, cleaning supplies, coffee beans — if you can get customers to auto-order, you're building an asset that a roll-up buyer will pay 10 to 20 times more for than a pure service business. Luna: But you also have to be careful about over-engineering it. If the subscription feels like a trap — hard to cancel, hidden fees — that creates churn and destroys value. Mark's contracts were straightforward. That's why the cancellation rate was low. Lucas: Exactly. The best recurring revenue is the kind that customers forget they're paying for because it's genuinely convenient. Mark's customers didn't have to think about chlorine levels. The truck showed up, the chemicals got delivered, the pool stayed clean. That's value. Luna: And that value translated into a 150-times ebitda exit. Not bad for a guy who started with a pickup truck and a dream. Lucas: Not bad at all. Next week, we're looking at a different kind of multiple — a niche software company that sold at 50 times revenue but had negative EBITDA. That one might be even more interesting. Luna: Oh, I'm already skeptical. Can't wait. Lucas: See you then.