Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Laundromat Sold at 8 Times EBITDA
Transcript
- Lucas: So Luna, I've been digging into a deal that just closed last month — a five-store laundromat chain in the Pacific Northwest. And the headline number is that it sold at eight times EBITDA. Luna: Eight times for a laundromat? That actually feels low. I would have guessed ten or twelve, given how steady that cash flow is. Lucas: That's exactly what I thought. But when you dig into the actual operation, the multiple makes a lot more sense. Let me walk you through the numbers and the story. Lucas: The business did about one point four million in revenue last year, with EBITDA right around four hundred and twenty thousand. So roughly a thirty percent margin, which is decent for that industry. Luna: Thirty percent margin is solid. So where does the eight times come from? Is it the equipment age? Lucas: Equipment is actually the first red flag. The washers and dryers are on a lease that has about four years left. So the buyer isn't even getting the machines — they're just getting the right to use them for a few years. Luna: That's a huge difference. You're not buying the assets, you're buying a lease. That has to cap your upside. Lucas: Exactly. And the lease terms are pretty aggressive. The monthly payment escalates two percent a year, and there's a clause that requires the buyer to maintain a certain level of machine utilization. If they don't, the lessor can terminate early. Luna: Ouch. So the buyer is locked into a lease that can blow up if they don't keep the machines running enough. That's a real risk. Lucas: Right. But there's more. The owner was heavily involved in the day-to-day. She was the one who handled all the coin counting, the maintenance coordination, even the hiring. So the business has a key person risk baked in. Luna: That's always a multiple killer. If the buyer has to figure out how to replace the owner, that's added cost and uncertainty. Lucas: And she wasn't just involved — she was the primary labor. The stores had only one part-time attendant per location, and the owner was covering the rest. So the buyer has to either work the same hours or pay up for managers. Lucas: The buyer, a regional operator who already runs a dozen laundromats, plans to centralize management and cut labor costs by about twenty percent. That's part of their synergy thesis. Luna: So the buyer sees value that a standalone buyer couldn't capture. That explains why the multiple is lower — it's not a pass-through to someone who's never done this before. Lucas: Exactly. Now, let's talk about the real estate. The seller owned the land under two of the five stores, and she sold those properties separately to an investor. So the deal excluded real estate entirely. Luna: So the buyer is now paying rent to a third party. That changes the cash flow profile completely. Did they get a long-term lease? Lucas: They negotiated a ten-year lease with two five-year options, which is good. But the rent is set at the market rate, so there's no sweetheart deal there. Luna: That's another reason the multiple is lower. You're not buying the asset that appreciates; you're just buying the operating cash flow, and you're paying rent. Lucas: And the rent is a real cost. We're talking about two hundred and twenty thousand a year for those two properties, which is about fifteen percent of revenue. That's a big chunk. Lucas: If the owner had kept the real estate and sold it as a package, the total price might have been higher, but the broker said the seller wanted to keep the upside on the land. And she got a good price on the sale — about one point eight times the assessed value, because of the location. Luna: So she's betting on continued appreciation. That can make sense, but it also means she's leaving some money on the table in the business sale. Lucas: Exactly. Now, the deal also included a three-year earnout tied to store-level EBITDA, but it's capped at two hundred thousand. So the seller could get up to two hundred thousand extra if the stores hit their targets. Luna: Given the key person risk, I bet the earnout is tied to her staying on as a consultant. Is that the case? Lucas: She signed a six-month consulting agreement at five thousand a month, and the earnout requires her to be available for transition support for the first two years. But it's not a full-time role — she's not running the machines. Lucas: So the buyer is paying a bit extra to make sure the handoff goes smoothly, but they're not relying on her long-term. That's a smart structure. Luna: Let's talk about the buyer's math. If they can cut labor costs by twenty percent and maybe negotiate better rates with the utility company, what does that do to their effective multiple? Lucas: If they hit those synergies, their effective purchase price could be closer to six times the post-synergy EBITDA. That's a great deal for a cash-flowing asset like this. Lucas: But it's also worth noting that the buyer is taking on real execution risk. The equipment lease, the rent increases, the ability to retain customers — all of that has to go right. Luna: So what's the takeaway for a listener who's thinking about selling their own small business? What can they learn from this deal? Lucas: The biggest one is this: if you want a higher multiple, you need to reduce the buyer's risk. That means diversifying your customer base, documenting your processes, and making sure the business doesn't depend on you personally. Lucas: This laundromat owner was the business, and that's why the multiple stayed at eight. If she had hired a manager a year or two ago and stepped back, she might have seen ten or eleven times. Luna: That's a real difference. On a four hundred and twenty thousand dollar EBITDA, going from eight to ten times is over eight hundred thousand dollars. That's not chump change. Lucas: No, it's not. And it's something a good business broker can help you plan for. They can tell you what buyers are looking for and what you need to fix before you go to market. Luna: Speaking of the broker — we should give a quick shout-out to the listeners who support this show. A couple of dollars a month is genuinely what keeps these conversations going. You can buy me a coffee at buy me a coffee dot com slash fexingo. It makes a real difference in keeping the podcast ad-free. Lucas: Yeah, that's true. We appreciate everyone who's listening and especially those who contribute. It helps us keep doing these deep dives. Lucas: So back to the deal — the broker also mentioned that this was a cash deal, no seller financing. The buyer had the money outright, which is a good sign for the seller. Luna: Cash is always nice, but with such a low multiple, did the seller have much leverage? I mean, the buyer could have walked away and found another laundromat. Lucas: That's the thing — there aren't a lot of five-store laundry chains on the market, so the seller had some leverage. But the buyer was also one of the few operators who could act quickly and understand the value of the synergies. Lucas: In the end, the deal closed at a fair price for both sides. The seller got a clean exit, and the buyer gets a platform to grow in that region. Luna: And you said they plan to grow, right? How do they see that playing out? Lucas: They want to add three more stores over the next two years, using the cash flow from these five to fund the expansion. They think there's room for a few more locations in that metro area, and they have the operational playbook already. Lucas: So this deal isn't just an exit — it's the foundation for something bigger. And that's what a good buyer looks for: a business that can be a platform, not just a standalone asset. Luna: That's a perfect note to end on. Thanks for joining us, and if you liked this episode, consider supporting us at buy me a coffee dot com slash fexingo. We'll be back with another deal breakdown soon.