Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Commercial Laundry Business Hit 30x EBITDA with Route Density
Transcript
- Lucas: So there's this commercial laundry business in central Ohio — linens for hotels, tablecloths for restaurants, that sort of thing — and it just sold for 30 times EBITDA. Luna: Thirty times? For a laundry business? That sounds like a software company multiple. Lucas: Exactly what I thought when I first saw the deal. The industry average for commercial laundry is around 8 to 12 times. This one blew past that because of one thing: route density. Luna: Break that down for me. What's route density in this context? Lucas: It's basically how many stops a driver can make in a given geographic area per shift. Most commercial laundry operators have routes that sprawl — they pick up from a hotel here, drop off to a restaurant 20 miles away, swing back. This owner mapped every single customer address, overlaid the routes, and realized he had five trucks covering areas that three trucks could handle. Luna: So he consolidated routes. Did he lose customers? Lucas: Not a single one. He reorganized the pickup and delivery windows so that each driver hit 19 stops per day instead of 12. Fuel costs dropped 18 percent. Labor costs dropped because he let two drivers go — not layoffs, attrition — and the remaining drivers had fuller trucks, which meant less idle time. Luna: And that lifted EBITDA? Lucas: Dramatically. The business was doing about $2.8 million in EBITDA before the route restructuring. After the changes, EBITDA stayed flat at $2.8 million — wait, that's not right. Let me correct myself. Before the changes, EBITDA was around $1.9 million. After route density improvements, margins expanded from 12 percent to about 18 percent, pushing EBITDA to $2.8 million. Luna: So the multiple was on the higher base. But 30 times still seems rich for a linen rental company. Lucas: It is, but the buyer wasn't a private equity shop. It was a publicly traded hospitality-services firm — think the company that supplies all the towels for a major hotel chain. They already had customers in the same region. The acquisition basically gave them a plug and play route network that they could overlay on their existing customer base. Luna: So they paid a premium for the infrastructure, not the revenue. Lucas: Exactly. The route density meant the buyer could add their own products — say, higher-margin specialty linens or uniform rentals — to those same stops without adding a single new truck. The seller had essentially built a distribution network that was more valuable than the laundry business itself. Luna: That's a fascinating angle. We've talked a lot about recurring revenue driving multiples — subscriptions, service contracts, memberships. But here the multiple came from operational efficiency. Lucas: Right. And I think there's a lesson for any business that involves physical delivery. If you can prove that your route structure is tighter than the average operator, you're suddenly competing on a different axis. Luna: But is it sustainable? I mean, the buyer paid 30 times because they believed they could juice the routes further. What if the density is already maxed out? Lucas: That's the risk. The buyer's thesis is that they can add volume to the same routes without adding cost. If they can't, the multiple looks silly. But the seller got paid based on what the buyer thought was possible, not on what actually happens. Luna: So the seller's job is to create the story of potential, not just the current numbers. Lucas: Exactly. And the story here was backed by data — real route maps, real fuel savings, real stop counts. That's what got the buyer comfortable writing a check for $84 million. Luna: $84 million? I missed that. So the sale price was $84 million on $2.8 million EBITDA? Lucas: Yes. 30 times $2.8 million is $84 million. That's a life-changing exit for a business that started as a single truck and a contract with a Holiday Inn. Luna: How long did it take the owner to build that route density? Lucas: About three years of deliberate effort. He didn't just stumble into it. He hired a logistics consultant — cost him $40,000 — and spent six months analyzing every route. The payoff was a multiple that's three times the industry norm. Luna: That $40,000 investment returned… well, exponentially. Lucas: It's a great example of a small operational change creating enormous value at exit. And it's replicable. Any business with a delivery component — landscaping, pest control, even HVAC — can do this kind of route optimization. Luna: But not every business will get 30 times. What made this one special beyond the density? Lucas: The strategic fit with the buyer. The buyer already had a sales force calling on the same hotels. They didn't need to build relationships from scratch. So the route was really an acquisition of a distribution channel, not just a laundry company. Luna: That's the part that's harder to replicate. You need a buyer who sees your business as a missing piece of their puzzle. Lucas: Right. And that's why you can't just optimize routes and expect a premium. You need to understand who the natural buyers are and what they value. In this case, the buyer valued density because it gave them immediate scale. Luna: So if I'm a business owner listening, what's the takeaway? Lucas: First, measure your route density today. Figure out your stops per driver per day. Then ask: can I increase that by 30 percent without losing service quality? If the answer is yes, that's a value creation project worth pursuing. Luna: Second, think about who would pay a premium for your infrastructure, not just your revenue. Lucas: Exactly. And if you can combine those two things — operational excellence and strategic buyer alignment — you can exit at a multiple that seems impossible until you see the check. Luna: Speaking of value, I want to mention something. We do these episodes without any ads, and that's a choice we've made from the start. If these conversations have helped you think about your own business differently, and you want to support keeping it that way, there's a link — buy me a coffee dot com slash fexingo. No pressure, it's just what keeps us independent. Lucas: Yeah, we've never run a single ad, and we're not going to start. That link is buy me a coffee dot com slash fexingo if you find value here. And honestly, even just telling another business owner about the show helps. Luna: Absolutely. Okay, back to route density. One question I had: could a business like this have gone public instead of selling? Lucas: Unlikely. $2.8 million in EBITDA is too small for an IPO. But it's a perfect size for a strategic acquisition. And that's the sweet spot for most of the businesses we talk about on this show. Luna: So the exit strategy here was really about positioning as an acquisition target, not as a standalone public company. Lucas: Exactly. And the route density was the hook that made the buyer pay up. Without it, the business probably sells for 10 times EBITDA — about $28 million. The owner left $56 million on the table by doing that optimization. Luna: That's a $56 million reason to pay attention to your routes. Lucas: And to hire a logistics consultant. Next episode, I want to talk about a similar story in the pest control space — where route density and annual contracts combined for a 22 times exit. Luna: Looking forward to it.