Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why Cleaning Companies Command 15x EBITDA Multiples
Transcript
- Lucas: Luna, I want to talk about a business category that consistently surprises people with its sale multiples. Commercial cleaning and janitorial services. Luna: Oh, interesting. Because on the surface, it's not glamorous. Mops, buckets, late-night shifts. Lucas: But the numbers tell a different story. I have a deal in front of me: a regional commercial cleaning firm based in the Midwest, sold in late 2025 for 15x EBITDA. That's a multiple you'd expect from a software company, not a business that scrubs floors. Luna: 15 times? That's above what we saw for that dental practice a few episodes back. What made this one special? Lucas: Three structural advantages that cleaning companies have. First: pure recurring revenue. This firm had multi-year contracts with office buildings, schools, medical facilities. Second: low capital intensity. Their biggest equipment cost was a few floor buffers and a van. Third: high customer retention. Their renewal rate was over 90 percent. Luna: So buyers are paying for a predictable cash flow stream, not for physical assets. Lucas: Exactly. And that's why private equity has been piling into this space. Cleaning is one of the most fragmented industries in the US. The top 50 companies control less than 20 percent of the market. So there's a huge roll-up opportunity. Luna: I've seen some of those roll-ups. They buy a platform company and then bolt on smaller operators, centralize back office, cross-sell contracts. Lucas: Right. And the seller in this case had already done some of that work. They had standardized their service model, installed routing software, and built a management team that could run without the owner. That's the kind of de-risking that pushes the multiple higher. Luna: So what should a cleaning business owner do today if they want to sell for a premium in two to three years? Lucas: Five actionable steps. First, convert all month to month customers to annual contracts with auto-renewal. That alone can add one to two turns of EBITDA multiple. Luna: And that's a conversation most owners are afraid to have. But if you explain it as better scheduling and price lock, customers usually agree. Lucas: Second, diversify your client mix. If you're 80 percent reliant on one office building or one school district, a buyer sees risk. Target three to four different verticals: office, healthcare, industrial, retail. Luna: So you're not just cleaning offices. You're cleaning clinics and warehouses too. Lucas: Third, invest in technology. A simple CRM and route optimization software. Buyers love seeing data on labor efficiency. Fourth, build a second-line manager who can handle day-to-day operations. And fifth, standardize your service delivery with checklists and quality scores. Luna: That's a lot. But none of it requires massive capital. It's more about discipline than money. Lucas: And that's why cleaning businesses can be such attractive acquisition targets. The cash flow is steady, the margins are decent, and the buyer can see a clear path to growth by adding accounts without adding overhead. Luna: We've been talking about selling a business, and I realize these kinds of conversations are exactly why we keep this podcast ad-free. We don't interrupt the analysis with commercials. If you find value in that, and if this show has helped you think about your own business differently, consider supporting us at buy me a coffee dot com slash fexingo. Lucas: It's a small way to keep the content independent. We don't do sponsors, we don't do endorsements. Just practical deal talk every episode. And we appreciate those who chip in. Luna: So back to the cleaning deal. One thing that stood out to me was the due diligence. What did the buyer focus on most? Lucas: Three areas. First, customer concentration. They wanted to see that no single client accounted for more than 10 percent of revenue. This firm had their top client at 8 percent, so they passed easily. Luna: Smart. One lost contract can kill a small cleaning company's valuation. Lucas: Second, labor stability. Cleaning has high turnover, but this firm had invested in training and benefits. Their annual turnover was under 40 percent, which is excellent for the industry. Luna: And third? Lucas: Third, contract quality. The buyer audited a sample of contracts to verify that terms were enforceable and that renewal clauses were clear. They found no issues. Luna: So the seller had done their homework. That 15x multiple wasn't luck. It was preparation. Lucas: Exactly. And that's the takeaway. If you own a cleaning business and you're thinking about an exit, start working on these steps now. The market is hungry for well-run cleaning companies, and the multiples are there for those who de-risk. Luna: I'd love to see a follow-up on how the buyer integrated this firm post-close. The real value creation often happens after the deal. Lucas: Agreed. Let's put that on the list for a future episode. For now, if you're a cleaning business owner, the message is clear: recurring revenue, low churn, and operational discipline are your ticket to a premium exit. Luna: And if you're thinking about buying, this is a sector worth serious consideration. Lucas: Alright, that's our show for today. Until next time, keep building something worth selling.