Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Bakery Sold at 25x EBITDA with Wholesale Contracts
Transcript
- Lucas: So there's this bakery in Portland — four locations, maybe ten million in revenue — and it sold last year for a multiple that would make a SaaS founder jealous. Luna: I think I heard about this. Was it the one that supplies school districts? Lucas: Exactly. Pearl Bakery — been around since the early 2000s. They had a retail side, but the real engine was wholesale. School districts, hospitals, a couple of grocery chains. Long-term contracts with automatic renewal clauses. Luna: And the multiple? Lucas: Twenty-five times EBITDA. A bakery. Not a tech platform. Not a subscription box. A bakery that bakes bread at four in the morning. Luna: That's wild. What was their EBITDA margin? Lucas: About 18 percent. So for a business doing ten million in revenue, that's one point eight million in EBITDA. At 25x, the enterprise value comes out to around forty-five million. Luna: For a regional bakery. What did the buyer see that made them pay that? Lucas: Predictability. The wholesale contracts represented about 70 percent of revenue. And those contracts had an average remaining term of three years, with auto-renewal unless either party gave 180 days' notice. So the buyer could look at the revenue stream and say, 'This is basically guaranteed for the next three years.' Luna: Right, because in practice, school districts and hospitals don't switch bakers mid-year. The switching cost is real. Lucas: Exactly. The buyer was a private equity firm that already owned a network of food service companies. They could fold Pearl Bakery into their distribution and immediately realize cost synergies. For them, the acquisition wasn't just about the bakery's standalone profit—it was about what the contracts did for the whole platform. Luna: So the multiple wasn't really for the bakery. It was for the contract book. Lucas: That's exactly the frame. And this is becoming more common. We've talked about subscription models in cleaning, pest control, car washes. But wholesale contracts are a form of recurring revenue that's often overlooked because it's B2B and it's not sexy. Luna: It's also stickier than consumer subscriptions in some ways. A consumer can cancel their car wash membership in two clicks. A school district has to go through procurement, get board approval, test new vendors. It's a process. Lucas: Right. And Pearl Bakery had been doing this for fifteen years. They had relationships with the food service directors. They knew the delivery schedules, the product specs, the allergy protocols. That institutional knowledge is hard to replicate. Luna: Were there any risks the buyer had to price in? Lucas: Customer concentration was the big one. Their top three customers accounted for about 55 percent of wholesale revenue. If one of those contracts went away in a bidding process, the valuation math changes fast. Luna: So how did the seller de-risk that before the sale? Lucas: They did two things. First, they diversified the contract portfolio over the three years before the sale. They added two new hospital systems and a regional grocery chain. That brought the top-three concentration down from 70 percent to 55 percent. Luna: Smart. Spread the risk. Lucas: Second, they renegotiated the largest contract to include a 24-month notice period instead of six months. That gave the buyer a longer runway to replace that revenue if needed. That one negotiation probably added two turns to the multiple. Luna: So the seller was basically managing the deal two years before it happened. Lucas: That's what good exit planning looks like. Most small business owners think about multiple when they're ready to sell. The smart ones start three years out, shaping the business to fit what buyers want. Luna: What's the takeaway for someone listening who runs a product-based business? Maybe not a bakery, but something like a specialty food manufacturer or a beverage distributor. Lucas: The first thing is to understand what part of your revenue is truly recurring. If you have contracts, look at the renewal terms, the notice periods, the concentration. If you don't have contracts, ask yourself if you can create them. Even a one-year contract is better than no contract. Luna: And the second thing? Lucas: Know who your buyer is. Pearl Bakery sold to a strategic buyer in the same space. A financial buyer—a pure private equity firm without existing food service operations—might have only paid 12 or 14 times. The synergies matter. Luna: So when you're building your exit narrative, you're not just pitching your business. You're pitching how you fit into someone else's bigger picture. Lucas: Exactly. And that bigger picture is what justifies the premium. The bakery's contracts didn't just generate cash flow—they gave the buyer a competitive advantage. That's worth 25 times EBITDA. Luna: It's also worth mentioning that this deal was all cash at close. No earnout, no seller note. The seller walked away clean. Lucas: That's rare. Most deals of this size have some contingent consideration. But the contracts were so clean and the buyer's conviction was so high that they agreed to pay full price upfront. Luna: I think a lot of listeners might think, 'Well, I don't have wholesale contracts. My business is different.' But the principle applies anywhere. The question is: what recurring, predictable revenue stream can you build? Lucas: Right. And if today's conversation gave you a new angle on that question—if it was worth a coffee to you—that's the link. Buy me a coffee dot com slash fexingo. It genuinely helps keep the show ad-free and focused on these real-world case studies. Luna: Yeah. It's a small gesture, but it makes a big difference for us. Lucas: So back to the bakery—one more detail I want to flag. The seller also had a non-compete that was five years and 50 miles. That's aggressive, but the buyer needed it to protect the contract relationships. Luna: That makes sense. If the seller could open a new bakery down the street and start calling those same school districts, the buyer's investment is at risk. Lucas: Exactly. And the seller was fine with it because they were ready to retire. They'd been doing this for twenty years. Their kids weren't interested in taking over. So the non-compete wasn't a constraint on their life plans. Luna: That's another lesson. The best time to sell is when you're ready to move on emotionally, not when you're forced to. Lucas: And that readiness gives you negotiating power. You can walk away if the terms aren't right. Pearl Bakery had multiple offers. They chose the one with the best fit, not just the highest price. Luna: What was the highest offer relative to the accepted one? Lucas: There was an offer at 27 times, but it was from a smaller private equity firm with less operational experience. The seller worried they'd struggle to realize the synergies and might try to renegotiate post-close. So they took 25 times from a buyer they trusted. Luna: That's a really mature perspective. A lot of sellers would have chased the headline number. Lucas: And a lot of them end up in litigation. The Pearl deal closed in 90 days, no hiccups. That's the benefit of choosing the right partner. Luna: So if I'm a business owner listening, the call to action is clear: start looking at your contracts now, even if you're not selling for five years. Lucas: Absolutely. And talk to a broker who understands your industry. The Pearl Bakery broker specialized in food and beverage. They knew exactly which buyers would value those contracts most. Luna: Great episode. Thanks, Lucas. Lucas: Thanks, Luna. Next time, we'll look at a very different deal—a commercial real estate firm that sold at 30 times EBITDA using triple-net leases. See you then.