Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why a Bakery Sold at 600x EBITDA with Recurring Revenue
Transcript
- Lucas: So we've talked a lot on this show about businesses selling at eye-watering multiples — the landscaping company at 45 times EBITDA, the baby-proofing service at 75 times. But I have to say, this week's case might be the one that makes you do a double-take. Luna: I've seen the numbers. Six hundred times EBITDA. For a bakery. That's not a typo, right? Lucas: Not a typo. A specialty bakery chain in the Pacific Northwest — let's call them 'Bread & Butter' — sold for six hundred times EBITDA earlier this year. And the reason is something we've been hinting at across a dozen episodes but never really isolated: recurring revenue that's practically sticky enough to call 'locked-in'. Luna: And this is the part where we usually say listener support makes this possible. A handful of people chip in monthly at buy me a coffee dot com slash fexingo, and it's genuinely what lets us spend the time digging into these deals. So if these conversations have moved your work forward in some way, that's the link. Lucas: Yeah. And today's case is a perfect example of why that kind of research matters. Because if you run a small business, the difference between selling at 5 times versus 600 times often comes down to one thing: whether your revenue shows up on autopilot. Luna: So walk me through Bread & Butter. What were they actually doing? Lucas: They started as a single artisan bakery in Portland about eight years ago. Great sourdough, good pastries. But around year three, the founder realized that walk-in retail is lumpy — weather, foot traffic, all that. So she started two deliberate revenue streams. First, corporate catering contracts: supplying morning pastry baskets to fifty tech offices in the Portland metro area. Those are weekly, standing orders, auto-renewed. Luna: And the second? Lucas: A subscription bread box. Customers pay forty dollars a month for a weekly loaf delivery. At the time of sale, they had 4,200 active subscribers. That's over two million dollars a year in subscription revenue alone — and almost no churn. Their monthly cancellation rate was under two percent. Luna: So the buyer wasn't buying a bakery. They were buying a subscription list and a catering route. Lucas: Exactly. When the deal was shopped, the broker presented two sets of numbers. The overall EBITDA was about three hundred thousand dollars. But the recurring portion — the subscriptions plus the catering contracts — contributed about two hundred thousand of that. And the buyer valued that recurring piece at about eight hundred times EBITDA, while the retail walk-in business was valued at maybe three times. Luna: So the blended multiple hit six hundred because the recurring revenue was so heavily weighted. That's the math. Lucas: Right. And here's what matters for anyone listening who runs a service business or a product business. The multiple isn't a mystery. It's a direct function of revenue predictability. A business where you can forecast next month's revenue within a five percent margin of error is a financial asset, not just a job. Buyers will pay a premium for that because they can leverage it — they can take out debt against future cash flows. Luna: So what's the actionable takeaway? If I'm a plumber or a landscaper listening, how do I start building that kind of recurring revenue? Lucas: Start with contracts. The simplest version: annual service agreements with auto-renewal. A plumbing company can offer a sixty-dollar-a-year maintenance plan that includes a yearly inspection and a fifteen percent discount on repairs. Even if only thirty percent of customers sign up, that's recurring revenue. And the data shows that businesses with even ten percent recurring revenue sell for multiples that are two to three times higher than pure transactional businesses. Luna: And Bread & Butter had what, like ninety percent recurring? Lucas: About eighty-five percent of their revenue was recurring at the time of sale. Which is why the multiple looks like a typo. But here's the thing: the founder didn't set out to build a high-multiple exit. She just wanted a stable, predictable income. The exit multiple was a byproduct of that decision. Luna: I love that. So the lesson is: build for stability, and the valuation follows. Lucas: Exactly. And it's not just about multiples. The buyer in this case was a regional food service conglomerate that already had distribution in the Pacific Northwest. They bought Bread & Butter primarily for the subscriber list and the catering relationships. The physical bakeries were almost incidental. They're planning to use the bakery space as a central kitchen for their existing brands. Luna: So the buyer saw the acquisition as a way to expand their own recurring revenue base, not just to own bakeries. Lucas: Right. And that's a common pattern in these high-multiple deals. The buyer has a platform that can amplify the recurring revenue. They're not paying 600 times for the current EBITDA; they're paying for the ability to grow that recurring revenue at a low marginal cost. In the buyer's hands, the subscription list might be worth ten times what it was to the original owner, because they can cross-sell their other products. Luna: So the multiple isn't just about the business itself. It's about the strategic fit with the buyer. Lucas: That's another huge point. If you want a high multiple, you need to find a buyer for whom your recurring revenue is a strategic asset. For Bread & Butter, the ideal buyer was a company that already had a distribution network and a product line that could be layered on top. The broker actually turned down three offers from individual investors who wanted to run the bakeries themselves. Luna: Because those buyers would have paid a lower multiple, even if they were willing to pay more absolute dollars? Lucas: Exactly. One of those buyers offered two million dollars cash — which is a lot for a bakery doing three hundred K in EBITDA. But the strategic buyer offered eight million, structured as a mix of cash and earn-out tied to subscriber retention. The broker knew the recurring revenue was worth more to someone who could scale it. Luna: So the broker played a crucial role in identifying the right buyer. That's something we don't talk about enough on this show. Lucas: True. And the broker in this case specialized in 'recurring revenue businesses' — it's a niche. She had a data room just for the subscription metrics: churn rate, customer acquisition cost, lifetime value, cohort analyses. The buyer's due diligence focused almost entirely on those numbers, not on the bakery equipment or the real estate. Luna: So if you're a small business owner, you should be tracking those metrics now, even if you're not planning to sell for five years. Lucas: Absolutely. Start measuring churn. Start segmenting your revenue by predictability. If you have a customer who's bought from you every month for the past year, that's recurring. Put a dollar figure on it. And when you talk to a broker, you lead with that number, not with your total revenue or your EBITDA. Luna: Which brings us back to the bakery. Their total revenue was about two point five million, but the recurring piece was two million. So they led with that. Lucas: Right. And the multiple on that recurring piece ended up being so high that it dragged the overall multiple to 600 times. The buyer essentially paid eight million for a two-million-dollar recurring revenue stream. That's a four-times multiple on revenue, which in the subscription world is actually reasonable. The EBITDA multiple just looks crazy because the EBITDA was small relative to revenue. Luna: So the headline multiple is almost a distraction. The real story is the recurring revenue multiple. Lucas: Exactly. And I think that's the takeaway for today. Don't get fixated on EBITDA multiples. Focus on building recurring revenue. If you can get to even thirty percent recurring, your exit multiple will probably double. Get to eighty percent, and you might see multiples that look like typos. Luna: And if you're already there, find a broker who understands recurring revenue and knows which buyers see it as a strategic asset. Lucas: That's it. And we'll keep digging into these cases because, frankly, they're fun. Next week we're looking at a business that sold for even higher on a recurring revenue base — but I won't spoil it. Luna: Tease. Alright, until next time.