Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why a Niche Home Inspection Business Sold at 70x EBITDA
Transcript
- Lucas: So there's this home inspection business in suburban Phoenix — one owner, two full-time inspectors, a part-time scheduler. No software, no patents, no recurring revenue in the traditional sense. It just sold for seventy times EBITDA. Luna: Seventy times? That's territory you usually see for a SaaS company with ninety percent gross margins. What did the buyer think they were buying? Lucas: That's the exact question. And the answer tells you something useful about how sophisticated buyers think about 'recurring' versus 'predictable'. The business did about four hundred inspections a year — almost all sourced through five local real estate agencies. The agents referred the business because the inspector was reliable, showed up on time, and never blew a deal with an over-zealous report. Luna: So it wasn't recurring revenue in the subscription sense — more like recurring demand driven by relationships. Lucas: Exactly. And the buyer — a mid-sized regional home services platform backed by private equity — didn't model it as recurring revenue either. They modeled it as a customer acquisition cost advantage. They paid seventy times trailing EBITDA because they calculated that buying this inspection business was cheaper than building the same referral network from scratch. Luna: That's a different lens. Most sellers hear 'recurring revenue' and think contracts. But here the defensibility was in the relationships. Luna: So what was the trailing EBITDA? Ballpark. Lucas: Around a hundred and twenty thousand dollars. The sale price was about eight point four million. That sounds high until you realize the buyer was effectively paying for a lead generation machine that would feed their larger platform for years. Luna: And the owner — what did they walk away with? Lucas: They took about three million in cash at close, with the rest in an earn-out tied to retention of the real estate relationships over three years. The owner stayed on as a part-time consultant, mostly just to introduce the buyer's team to the agency partners. Luna: That earn-out structure is smart. It aligns incentives — the seller only gets the full payout if the relationships actually transfer. Lucas: Exactly. And that's the part most small business owners miss. They think EBITDA multiple is purely a financial metric. But informed buyers are really pricing the transferability of whatever creates demand. In this case, it wasn't a contract — it was trust. Luna: So how does a service business owner who doesn't have a platform buyer replicate this? Lucas: They can start by documenting what their repeat referral sources actually are. Do you have five agents who send you every deal? Three property managers? A home warranty company that lists you as preferred vendor? That's the asset. Even without a signed contract, if those sources have sent you business consistently for three years, a buyer will assign value to that. Luna: And the owner in Phoenix — how long had they built those relationships? Lucas: Seven to ten years with the core agencies. One agent had been referring them for over a decade. That kind of tenure is itself a signal of quality. Buyers love longevity because it implies the relationship will survive the transition. Luna: So the lesson might be: don't obsess over building subscription revenue if your business is inherently transactional. Instead, figure out what your recurring demand driver is and make it visible. Lucas: Exactly. And that's what the broker did here. The offering memorandum didn't lead with financials — it led with a map of referral sources, their tenure, and the revenue per source over the last five years. It was basically a portfolio of relationships. Luna: I love that. It reframes the business from 'we do inspections' to 'we own the entry point to a thousand homebuyers a year'. Lucas: And that frame justified the seventy multiple. Because the buyer's internal rate of return projection assumed they'd convert about thirty percent of those inspection clients into at least one additional service within twelve months. That alone was worth the acquisition price. Luna: So the buyer saw it as a customer acquisition play, not a service business acquisition. Lucas: Correct. And that's becoming more common. Private equity firms are increasingly buying small service businesses not for their standalone cash flow, but for the customer base they can feed into a larger platform. The inspection business is a perfect example because the customer is already in a buying mindset — they just bought a house, they have a list of things to fix or improve. Luna: It's a moment of high intent. Lucas: High intent and high trust. The inspector is the one person who just spent three hours crawling through their attic and crawlspace. If you're that inspector and you recommend a roofer or a plumber, the homeowner is very likely to call them. Luna: So the buyer is essentially acquiring that trusted recommendation channel. Lucas: Exactly. And that's hard to build. You can't just call up a real estate agent and say 'send me your clients.' It takes years of consistent performance. The buyer paid for that time compression. Luna: What's the takeaway for someone listening who owns a service business — maybe not inspections, but something similar? What should they do this week? Lucas: This week: map your referral sources. Write down every person or company that has sent you business in the last twelve months. Then ask yourself: could a buyer see this as a pipeline into a larger market? If the answer is yes, you have a story that can command a multiple far above the standard one-to-three times EBITDA that small service businesses usually trade for. Luna: And that's the kind of story that makes a buyer pay attention — and pay up. Lucas: If these conversations have moved your work forward in some small way, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. No pressure, just a way to keep it ad-free. Luna: Yeah, it really does help us keep doing this. And we appreciate everyone who's already chipped in. Lucas: Back to the inspection business — one more stat that stuck with me. The buyer's underwriting assumed that within three years, the inspection unit itself would be break-even, but the downstream revenue from cross-sells would generate a seven-figure annual profit. That's the power of the platform thesis. Luna: So the inspection business almost becomes a loss leader in the buyer's model. Wild. Lucas: It is. And it means that for the right buyer, a seemingly ordinary service business can be worth far more than its standalone cash flow suggests — if the seller knows how to tell that story.