Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Family-Owned Hardware Chain Sold at 10 Times EBITDA
Transcript
- Lucas: So Luna, we've covered a lot of ground on this show — from cleaning companies to dental labs — but today I want to talk about something a little more tangible, something you can walk into and touch. A family-owned hardware chain in the Pacific Northwest just sold for ten times EBITDA. Luna: Ten times for a hardware chain? That sounds high. I mean, retail's been struggling, and hardware is so asset-heavy. What made this one special? Lucas: Right, and that's exactly the question. Before we dive into the details, if today's conversation gives you one insight that helps you think about your own business or a sale you're considering, the way we keep these episodes free and ad-free is through listener support. You can buy me a coffee at buy me a coffee dot com slash fexingo. It's a small gesture, but it genuinely keeps the lights on here. Luna: Yeah, and we really appreciate it. Now, back to that hardware chain — what was the story? Lucas: Well, the chain had been in the same family for three generations. Three locations, all in medium-sized towns, each with a loyal customer base that had been shopping there for decades. The owners, the Millers, had no debt, and their books were impeccable. Every receipt, every invoice — everything was digitized and organized. Luna: That sounds like a rarity in itself. But ten times EBITDA — that's not just clean books. There has to be something else. Lucas: Exactly. The real kicker was the real estate. The company owned the land and buildings for all three stores outright. No mortgages. So the buyer wasn't just buying a business — they were buying three parcels of prime commercial real estate in growing towns. That alone justified a chunk of the multiple. Luna: So the real estate essentially added a safety net. Even if the retail side struggled, the buyer could sell the properties or lease them out. Lucas: Precisely. And that's a common theme we've seen in deals where owners own the property. But there's more. The chain had also diversified beyond just selling tools and paint. They had a lock and key service, a small tool rental section, and they did commercial supply for local contractors. That recurring, service-based revenue made up about thirty percent of their top line. Luna: So they weren't just a retail store — they were a local hub. That's hard to replicate, and it creates a moat. Lucas: Exactly. And the buyer, a regional private equity firm, saw that as a way to expand into neighboring areas. They could take that model — the services, the community focus — and apply it to other locations they might acquire. Luna: So the multiple was partly based on growth potential, not just current earnings. That's a big shift from some of the smaller deals we've covered. Lucas: Right. And here's another piece: the Millers had groomed a general manager over the past five years to take over day-to-day operations. So the buyer didn't have to worry about the founders walking out the door on day one. That key-person risk we've talked about before was essentially eliminated. Luna: That's a huge deal. In so many small businesses, the owner is the business. Buyers are terrified of that. Having a successor in place changes the whole risk profile. Lucas: Absolutely. And it's not just the operational side. The Millers had also transitioned the customer relationships. The general manager, Sarah, had been the face of the stores for years. Customers trusted her. So the buyer was getting an established brand that wasn't dependent on the family's last name. Luna: That's smart. But I have to ask — was there any pushback on the multiple? I mean, ten times for a traditional retailer seems aggressive. Lucas: There was definitely negotiation. The initial ask was twelve times, and the buyer came in at eight. They settled at ten after a competitive bidding process — there were actually three serious offers, which surprised everyone, including the seller's broker. Luna: Three offers? That's interesting. What drove the competition? Lucas: A few things. First, the locations were in areas where big box retailers had pulled out, leaving a vacuum. Second, the commercial contracts with contractors were sticky — they weren't going anywhere. And third, the real estate gave the buyer a tangible asset that could be financed separately. Luna: So it was almost like buying a cash-flowing real estate portfolio with a business attached. That makes the multiple more understandable. Lucas: Yeah, and that's a key lesson for any business owner: if you own your real estate, it can significantly boost your sale price — but only if you structure it right. In this case, the Millers sold the business and the real estate in one transaction, which simplified things for the buyer and maximized the total price. Luna: Did they consider selling the real estate separately and leasing it back? I've heard that can be a tax advantage. Lucas: They did. Their accountant actually recommended that, but the Millers wanted a clean exit. They didn't want to be landlords. And given that they had a high basis in the property, the tax hit wasn't as bad as they feared. So they opted for simplicity over optimization. Luna: Sometimes the simplest exit is the right one. But let's talk numbers — what was the EBITDA? I'm curious about the scale. Lucas: The trailing twelve-month EBITDA was around two point eight million dollars. So the deal was priced at twenty-eight million. The real estate was independently appraised at about nine million of that, so the operating business was essentially valued at nineteen million, or about six point eight times EBITDA. Luna: So when you strip out the real estate, the multiple is actually more in line with what we've seen for other retail businesses. The ten times headline is a bit misleading. Lucas: Exactly. And that's a crucial takeaway: when you hear about a high multiple, you have to dig into what's actually being purchased. Sometimes it's not apples to apples. But that said, the buyer still paid a premium for the growth potential and the management team in place. Luna: And what about the earnout? Was there one? Lucas: No earnout this time. The Millers wanted a clean break, and the buyer was confident in the cash flows. They did hold back a small escrow, about five percent, to cover any working capital adjustments, but it was released within ninety days once the inventory was reconciled. Luna: A clean sale — no earnout, no seller financing. That's rare, especially at that size. What was the buyer's financing structure? Lucas: The PE firm used a combination of an SBA loan for the real estate portion and a traditional term loan for the business assets. They put down about thirty percent equity. The real estate being owned outright made the SBA part straightforward because there was no debt to pay off. Luna: So they used the real estate as a borrowing base. That's a classic move. And it explains why they were willing to pay a higher multiple — the leverage was cheap. Lucas: Right. Which brings me to the bigger lesson for our listeners: if you own the property your business operates from, don't overlook that value. It can be the difference between a good exit and a great one. But also, don't assume you have to sell the real estate with the business. Sometimes leasing it back can attract a different kind of buyer. Luna: And what about the operational side? You mentioned services were a big part of the revenue. How sticky were those contracts? Lucas: Very sticky. The commercial supply contracts with local contractors were multi-year, and they were automatically renewed unless either side gave ninety days notice. In practice, they'd been with the chain for an average of seven years. That recurring revenue stream was a major selling point. Luna: That's the kind of recurring revenue that lifts a multiple, as we've said before. But I wonder — did the Millers do anything specific in the years leading up to the sale to boost that stickiness? Lucas: They did. About three years before the sale, they started a loyalty program for contractors — volume discounts, dedicated account managers, even a monthly breakfast at each store. It sounds small, but it deepened those relationships. And they also invested in a simple CRM to track interactions, which made the business look more modern to buyers. Luna: So they didn't just rest on their history — they actively worked to make the business more valuable. That's something any owner can do, regardless of industry. Lucas: Exactly. And one more thing: they cleaned up their inventory. They had a lot of slow-moving SKUs that were tying up cash. They ran a couple of clearance sales and brought inventory levels down to about forty-five days of sales, which is considered healthy for that industry. That reduced working capital needs and made the financials cleaner. Luna: Inventory optimization is often overlooked. A lot of owners think they need to have everything in stock, but excess inventory just drags down cash flow and turns off buyers. Lucas: Right. So to wrap it up, the ten times multiple was really a composite: real estate value, recurring revenue, a management team in place, and a buyer with a clear growth plan. The operational business itself was probably worth more like six or seven times, which is still healthy for retail. Luna: And the lesson for our listeners? Don't just focus on your EBITDA. Think about the whole package — real estate, contracts, people, and processes. That's what builds a premium valuation. Lucas: Well said. And as always, if you're thinking about selling your business, start preparing years in advance. The Millers did, and it paid off. Thanks for joining us, and we'll see you next time.