Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Machine Shop Sold at 6x EBITDA With No Broker
Transcript
- Lucas: So you meet someone who sold their business without a broker, and your first reaction is usually: 'Wow, you saved a lot of money,' followed quickly by: 'How did you not screw it up?' Luna: Exactly. And in this case, a machine shop in Ohio — family-owned, about 25 employees — sold for 6 times EBITDA. No broker. The seller handled everything himself. Lucas: That's a 6x multiple on roughly 400,000 in EBITDA — so a sale price around 2.4, maybe 2.5 million. And he saved the typical 10 percent broker fee, which would have been about 240,000. But here's the thing: he almost lost the deal over a non-compete clause that he wrote himself. Luna: Oh, that's a classic DIY mistake. Let's walk through it. Lucas: Look, if these conversations have moved your work forward in some small way, the best way to keep them ad-free is a coffee. It's buy me a coffee dot com slash fexingo. No pressure, just a low-key way to say this stuff matters to you. Luna: Yeah, it literally keeps the lights on. And now back to the machine shop. Lucas: Right. So the seller — let's call him Tom — had run the shop for 30 years. He knew his numbers inside out. But when he decided to sell, he didn't call a broker. He figured: 'I found the customers, I found the suppliers, I can find a buyer.' Luna: And did he? How did he find one? Lucas: He reached out to a competitor he'd known for years — a larger shop about 80 miles away. They had talked about consolidation before. Tom sent over a one-page summary: revenue, EBITDA, customer concentration, equipment list. No formal CIM, no teaser. Luna: That's risky. Without a broker, you have no confidentiality agreement in place upfront. That competitor could have used that info to undercut him. Lucas: Exactly. But in this case, the buyer was serious. They signed a mutual NDA after that first call. Then Tom shared his financials — three years of tax returns and an internal P&L. The buyer's initial offer was 5.5x EBITDA, about 2.2 million. Luna: And Tom held out for 6x. How did he justify that? Lucas: He pointed out that his equipment was well-maintained, his customer retention was over 90 percent, and he had no debt. He also showed that a similar shop in the region had sold through a broker at 6.3x a year earlier. So the buyer came up to 6x. Luna: So the valuation part worked. But the deal almost fell apart over the non-compete. What happened? Lucas: Tom drafted the non-compete himself. He wrote that he wouldn't 'engage in any business similar to the shop' for three years within 100 miles. That was too broad — the buyer's lawyer said it was likely unenforceable in Ohio. Luna: And that's a deal-breaker for a buyer. They want to make sure the seller doesn't just open up across the street. Lucas: Right. So the buyer's attorney proposed a narrower version: two years, 50 miles, and only for the specific types of machining the shop did. Tom thought that was reasonable — he wasn't planning to compete anyway — so he signed. But he had to pay his own legal fees to get it reviewed, which he hadn't budgeted for. Luna: That's another hidden cost of going without a broker. A broker would have flagged the non-compete issue early and probably had a standard template. Lucas: And the legal fees weren't the only surprise. Tom also had to handle the due diligence requests himself. The buyer wanted details on the top five customers, the maintenance logs for the CNC machines, and an environmental report. Luna: All of which took time. Tom was still running the business while answering questions. Lucas: He told me he spent about 40 hours on due diligence over three months. That's time he wasn't spending on the shop floor. His margins actually dipped a bit during that period because he was distracted. Luna: But in the end, he closed the deal. And he saved the commission. Lucas: He saved about 150,000 — because the final price was 2.5 million. But he also spent about 8,000 on legal fees, 2,000 on an environmental consultant, and maybe another 1,000 on copying and shipping documents. So net savings around 139,000. Luna: Not bad. But is it worth it for most owners? I mean, a broker would have handled all that friction. Lucas: The data suggests that sellers who use a broker get slightly higher multiples on average — maybe 0.3x to 0.5x more — because brokers run a competitive process. So the commission can be offset by a better price. Luna: But Tom didn't have a competitive process. He had one buyer. If that buyer had walked, he'd have been back to square one. Lucas: Exactly. And that's the real risk of a DIY sale. You have no backup. If the deal falls through, you've wasted months and maybe tipped off your employees or customers that you're selling. Luna: So when does going without a broker make sense? Tom's case seems like a best-case scenario — he knew the buyer, he knew his numbers, and he was willing to negotiate. Lucas: I think it works when three things are true: you have a ready buyer in mind, you have clean financials that a buyer can verify easily, and you're comfortable with legal and negotiation basics. But even then, you should still hire a lawyer who specializes in M&A — not your cousin who does real estate closings. Luna: And maybe a part-time CFO or CPA to help with the data room. Lucas: Right. Tom did that — his accountant prepared a quality of earnings report for about 3,000. That was money well spent. It gave the buyer confidence. Luna: So the takeaway isn't 'never use a broker' or 'always go DIY.' It's: know your own capabilities and the specific deal context. Lucas: Exactly. Tom saved money, but he also took on risk. For a lot of owners, the peace of mind a broker provides is worth the fee. But for a small, focused group of sellers, a DIY exit can work. Luna: And now Tom is retired, enjoying his non-compete-restricted freedom. Lucas: He's actually consulting — just not for machine shops within 50 miles. I think he's happy with how it turned out.