Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Commercial Janitorial Firm Sold at 95x EBITDA with Recurrence Data
Transcript
- Lucas: So a few weeks ago, a commercial janitorial firm called CleanCore Services – based out of Columbus, Ohio – closed a deal that I think is going to become a case study in how to sell a boring business for an absurd multiple. Luna: I saw that. Ninety-five times EBITDA. I had to read it twice. Lucas: Right. Ninety-five times. For a company that cleans office buildings, warehouses, and a few municipal facilities. Not a tech company. Not a biotech. A mop and bucket operation with about a hundred and fifty thousand dollars in annual EBITDA. Luna: So the purchase price was around fourteen million? On one-fifty in earnings? That math is wild. Lucas: It is. And the buyer was a regional private equity platform – Midwest Facilities Group – that's been rolling up cleaning and maintenance companies across five states. They paid that multiple for one reason: CleanCore had data. Luna: Not just financials, but data on contract stickiness, renewal patterns, labor efficiency. I read the deal memo. Lucas: Exactly. CleanCore's revenue was about ninety percent recurring under multi-year municipal contracts. But here's the kicker – every contract had an automatic renewal clause unless the client gave ninety days' notice to cancel. And CleanCore had a twelve-year history showing that less than two percent of clients ever gave notice. Luna: So the buyer could model that revenue stream almost like an annuity. That's the kind of predictability that justifies a high multiple. Lucas: Yes. But there was a second factor. CleanCore had developed a proprietary scheduling algorithm that optimized cleaning routes based on square footage, occupancy patterns, and historical labor data. It reduced their labor costs by about eighteen percent year-over-year for four straight years. Luna: So the buyer saw a chance to roll that software across their entire platform – not just keep CleanCore's contracts, but improve margins on every company they already owned. Lucas: That's exactly it. The algorithm alone was worth maybe three or four million in potential value to Midwest Facilities. But the third factor might be the most instructive for our listeners. Luna: What's that? Lucas: CleanCore's data room didn't just show revenue and expenses. They mapped every contract to a timeline – this client has been with us for seven years, this one for eleven, here's the renewal probability for each one in the next twelve months. They gave the buyer a way to see the future. Luna: That's a huge lift for a small business. Most owners just dump PDFs of P&Ls into a Dropbox folder. Lucas: And that's why they leave money on the table. CleanCore's owner – a guy named Dave Markov – spent about six months and maybe thirty thousand dollars on a data consultant to build that model. It cost him money upfront, but it added roughly ten million dollars to his sale price. Luna: So the ROI on that data project was something like three hundred to one. That's the kind of stat that should wake up every owner of a service business. Lucas: Let's talk about what a ninety-five times multiple actually means in practice. Because a lot of people hear that number and think 'my business could get that.' But it's not just about the number. Luna: Right. It's about the buyer's thesis. Midwest Facilities wasn't buying a cash flow stream; they were buying a platform asset. Lucas: Exactly. The buyer is paying for the ability to deploy CleanCore's algorithm across their entire portfolio and to use CleanCore's municipal relationships to win contracts for the other portfolio companies. That's synergy value, not standalone value. Luna: So for a business owner listening, the question is: do you have something that a strategic buyer can multiply across a larger platform? Or are you just selling a standalone cash flow? Lucas: And if you're just selling cash flow, you're probably looking at four to six times EBITDA – maybe eight if you have good recurring revenue. Nothing wrong with that. But if you want to hit double-digit multiples, you need something proprietary. Luna: CleanCore had two proprietary things: the algorithm and the client data set. And they packaged it so the buyer could see the value clearly. Lucas: Let me give you one more detail that I think is crucial. The municipal contracts – those are hard to win. They often require bidding, bonding, compliance certifications. CleanCore had been in that game for over a decade and had built relationships with procurement officers across central Ohio. Luna: So the barrier to entry for a competitor is high. That's another thing buyers love. Lucas: Right. And CleanCore had a renewal rate that was essentially 100% for the past five years. Not a single municipal client left. That kind of track record is gold in an M&A data room. Luna: It also helps that the building-services space is seeing a wave of consolidation right now. Private equity has raised a ton of capital for facility services roll-ups. Lucas: That's true. But I want to caution listeners: don't count on a frothy market to save you. The multiples are high now, but the fundamentals still matter. CleanCore would have commanded a premium even in a slower market because of the data and recurrence. Luna: So what's the takeaway for someone who owns, say, a landscaping company or a pest control firm or a staffing agency? What can they do starting tomorrow? Lucas: Three things. First, start tracking renewal rates by client cohort. Not just total revenue, but how many clients renew year after year, and which ones are most likely to stay. Second, build a proprietary process or piece of software that makes your operation more efficient – even if it's just a spreadsheet model that optimizes routes. Luna: And third? Lucas: Third, clean up your data room. Don't just give a buyer three years of tax returns. Give them a forward-looking model that shows them the probability of each revenue stream continuing. That alone can add multiple turns to your multiple. Luna: That's really practical. I think a lot of owners hear '95 times EBITDA' and think it's unattainable, but the principles are replicable. Lucas: They are. And speaking of replicable value – if today's episode moved the needle for you in thinking about your own business, the way we keep these conversations ad-free and deep is through listener support. It's buy me a coffee dot com slash fexingo. Seriously, a coffee's worth of contribution helps us keep doing deep dives like this one. Luna: Yeah, it's a small way to keep the show independent and focused on what matters. Appreciate anyone who chips in. Lucas: Now, back to CleanCore. I want to talk about what happened after the deal closed, because it reveals something about the private equity playbook. Luna: Go on. Lucas: Within thirty days, Midwest Facilities installed CleanCore's algorithm at two of their other portfolio companies – a commercial landscaping firm and a janitorial company in Indianapolis. They're projecting a combined fifteen percent labor cost reduction across those two companies in the first year. Luna: So the buyer is already realizing the synergy value they paid for. That validates the purchase price. Lucas: Exactly. And here's the part that matters for sellers: Dave Markov, the founder, stayed on as a regional vice president with an earn-out that could pay him another two million over three years if the platform hits certain targets. Luna: So he's got a second bite at the apple. That's smart deal structuring. Lucas: It is. And it's common in these strategic sales. The buyer wants the founder to stick around to transfer relationships and know-how. So if you're negotiating a deal, think about an earn-out tied to the performance of your intellectual property or client relationships, not just overall revenue. Luna: That's a good point. You want the earn-out to be tied to something you can actually control. Lucas: And the final lesson from CleanCore – it's never too early to start building a data advantage. Dave Markov began tracking client renewal data back in 2014. He didn't know he was going to sell for fourteen million dollars a decade later. He just thought it was good management. Luna: And it turned into an asset worth millions. That's the kind of story that makes me want to go dig into my own client data. Lucas: Absolutely. So for anyone listening, start today. Even if you're not selling for five years, the data you collect now will be the foundation of your premium multiple later. Luna: Great episode. CleanCore Services – a case study in turning boring into beautiful. Lucas: Next time, we'll look at a business that sold on the opposite end of the spectrum – a high-growth tech consultancy that went for a low multiple because they lacked recurrence. That's a different kind of cautionary tale.