Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Landscaping Company Scaled to 8x EBITDA with Recurring Contracts
Transcript
- Lucas: You know the knock on landscaping companies when it comes time to sell? Buyers look at them and see a commodity. Lawn mowing, leaf blowing — any guy with a truck and a trailer can compete on price. So the multiples tend to hover around 4 or 5 times EBITDA, maybe 6 if the equipment is new. Luna: Right, I've heard that. And the seasonality scares people too. Your revenue drops to near zero in the winter unless you're in Florida or California. Lucas: Exactly. But a landscaping company in Portland — let's call it GreenScape — figured out how to break out of that mold. They sold last year at 8 times EBITDA. That's a full two to three turns above what the market typically gives a company like theirs. Luna: Eight times? That's getting into software territory. What did they do differently? Lucas: They rebuilt their entire revenue model around recurring contracts. Not the standard season to season verbal agreement where the customer can ghost you in March. I'm talking multi-year, auto-renewing maintenance agreements with built-in price escalators. Luna: Multi-year for landscaping? Did homeowners actually sign those? Lucas: They didn't go after homeowners. That was the first strategic shift. GreenScape pivoted hard into commercial properties — office parks, retail centers, apartment complexes with more than 50 units. Those property managers hate turnover. They want one vendor who shows up every week, invoices consistently, and handles snow removal in the winter without them having to find a separate company. Luna: So they bundled services. Mowing, pruning, mulching, snow removal, irrigation maintenance — all under one contract. Lucas: Exactly. And they structured those contracts with a three-year initial term and automatic one-year renewals unless either party gives 90 days notice. The price increases by 3% every January, tied to the CPI. That alone kills the biggest objection buyers have: 'How do I know these customers will stick around after you leave?' Luna: What percentage of their revenue ended up under contract? Lucas: By the time they went to market, approximately 72% of their revenue was recurring under those multi-year agreements. Another 15% came from one-off projects — tree removal, landscape design, hardscaping — that they used to fill capacity in slow weeks. And the remaining 13% was snow removal, which is transactional but they had first-right-of-refusal clauses in the maintenance contracts. Luna: That's a massive shift. Most landscaping companies I've looked at are lucky to have 30% recurring. What about the actual operations — how did they handle the transition? Lucas: The owner — his name is Mark — told me it took about 18 months to fully convert the book. He started by identifying his top 50 commercial clients and personally pitching the multi-year agreement. He offered a 5% discount on the first year in exchange for the three-year commitment. About 30 of those 50 signed immediately. Then he used those case studies to go after the next tier. Luna: He gave up margin upfront to get the contracts. That's smart — it cost him a bit of profit in year one but completely changed the valuation story. Lucas: Right. And here's the thing — buyers care about predictability more than they care about absolute margin. A company with 18% margins and 70% recurring revenue is worth more than a company with 25% margins and 30% recurring revenue, because the risk profile is so different. Luna: If today's conversation is giving you ideas about your own business, that's exactly why we do these episodes. The reason we can keep the show ad-free and focused on real deal stories is that listeners like you support it. If you found this useful, you can help us keep going at buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure, just — if it moved the needle for you, that's how we know we're on the right track. Lucas: Yeah, we don't have sponsors, we don't sell anything. It's just us and the people who find value in these conversations. So thanks for being part of it. Luna: Back to GreenScape — I'm curious about how they documented the contracts for due diligence. Buyers can get nervous if the contracts aren't standardized. Lucas: That's a great point. Mark hired a part-time paralegal for six months to clean up every single contract. They created a template with uniform terms — same payment schedule, same termination clause, same price escalator. The only variable was the scope of services and the square footage. By the time the buyer's lawyers reviewed them, there were no surprises. Luna: So the buyer could model the revenue with confidence. That's huge. Lucas: Exactly. The buyer — a regional roll-up platform backed by private equity — told Mark that the contract quality was the single biggest factor in their offer. They had looked at seven other landscaping companies in the Pacific Northwest, and GreenScape was the only one where the recurring revenue was truly sticky. Luna: What about customer concentration? If one commercial client represents 20% of revenue, that's a red flag. Lucas: Mark was careful about that. His largest client was 8% of total revenue. His top five together were about 25%. That's well within the comfort zone for most buyers. He actually turned down a few large contracts because they would have created concentration risk. He told me he lost about $200,000 in potential annual revenue by doing that, but it probably added a multiple point to his valuation. Luna: Sacrificing top-line growth for quality of earnings. That's a hard decision for a lot of owners. Lucas: It is. But Mark said the PE firm told him explicitly: 'If you had a 20% client, we would have offered 7 times, not 8.' So the math worked out. He also made sure the contracts had auto-renewal clauses that didn't require a signature every year. That's key — if you have to re-sign every client annually, it's not truly recurring. Luna: So the contracts rolled over unless the client actively cancelled. And with the 90-day notice period, the buyer has a three-month pipeline of any potential churn. Lucas: Right. And the churn rate was only 4% per year over the three years before the sale. That's incredibly low for a service business. For context, the industry average for commercial landscaping is around 12 to 15% annual churn. Luna: How did they achieve that? Was it just the contracts, or were they doing something operationally? Lucas: Both. Operationally, they invested in a CRM system that tracked every client interaction. They had a customer success manager — that's not a term you hear often in landscaping — who called each commercial client quarterly to review service quality and address any issues. They also did annual site walkthroughs with the property manager to plan the next year's budget. That made the client feel like a partner, not just a monthly invoice. Luna: So the relationship became harder to replace. A competitor can't just undercut by $50 a month if the property manager has a personal relationship with the account manager. Lucas: Exactly. And that's what the buyer was paying for. The equipment, the trucks, the inventory — that's all replaceable. The client relationships under long-term contract — that's the asset. Luna: What was the final EBITDA multiple? You said 8 times. What was the actual sale price? Lucas: The sale price was $6.4 million. GreenScape was doing about $4.2 million in revenue with $800,000 in EBITDA at the time of sale. So 8 times EBITDA gave Mark a nice exit. He walked away with about $5.1 million after the small earn-out. Luna: The earn-out — how was that structured? Lucas: Standard two-year earn-out tied to client retention. If GreenScape retained at least 90% of the recurring revenue for two years post-close, Mark got an additional $400,000. He was confident — and it actually hit 94% retention in year one, so he's on track for the full earn-out. Luna: That's a nice cushion. And it aligns the seller with the buyer's interests post-close. Lucas: Absolutely. The whole deal took about five months from initial conversation to close. Mark had all his financials clean — three years of audited P&Ls, a detailed client list with contract end dates, and a three-year projection showing how the recurring revenue base would grow. He made the buyer's job easy. Luna: That's the lesson, isn't it? If you want a premium multiple, you have to remove the buyer's uncertainty. And contracts are the clearest way to do that. Lucas: Exactly. Mark didn't invent some new technology. He just took a commodity service and made it predictable. And predictability is what buyers pay for.