Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / How a Dog Daycare Sold at 100x EBITDA with Membership Data
Transcript
- Lucas: So earlier this year, a dog daycare chain in Austin with four locations sold for a multiple that made people in my DMs ask if the buyer had lost their mind. One hundred times EBITDA. The buyer was a regional roll-up platform backed by a family office. Luna: One hundred times? That's higher than any SaaS multiple we've talked about in months. What was the revenue base? Lucas: About two million in trailing twelve-month EBITDA. So the enterprise value was around two hundred million. For dog daycare. But the story isn't about dogs — it's about the data. This chain had converted ninety-two percent of its daily drop-off visitors into monthly memberships. Luna: Ninety-two percent membership conversion? That's wild. Most pet care businesses are still transactional — people pay per visit, maybe buy a punch card. Lucas: Exactly. The owner, a woman named Rachel, started the first location in 2019. She built a simple CRM that tracked every visit, every referral, every add-on service like grooming or training. She realized early that the customers who came three or more times a month had a lifetime value about eight times higher than the occasional visitor. Luna: So she started pushing memberships. What was the pitch? A discount? Lucas: Not just a discount. The membership was a flat monthly fee — say three hundred dollars — for unlimited daycare. No per-visit charges, no peak pricing. The customer got predictability, and Rachel got predictable revenue and a credit card on file. She also built in a referral bonus: members got two weeks free if they brought in a new member. That drove her acquisition cost down to about fifteen dollars per new member. Luna: Fifteen dollars to acquire a monthly subscriber paying three hundred? That's a payback period of like a month and a half. Lucas: Less. Because the gross margin on daycare is around seventy percent after labor and rent. So each member was generating about two hundred ten dollars in gross profit per month. Rachel's customer acquisition cost was fifteen bucks. The math works. Luna: And the buyer? They weren't buying a dog daycare. They were buying a subscription book with high retention. Lucas: That's exactly how the buyer's CEO described it in the press release. They said, 'We're acquiring a membership platform with a physical service component.' The roll-up had seven other daycare brands in the Southeast, all transactional. They planned to retrofit them with Rachel's CRM and membership model. Luna: So the multiple reflects the value of the system, not just the cash flow. That's a playbook we've seen in other sectors — the commercial cleaning company in episode 92 had a similar dynamic with recurring contracts. Lucas: Right. But the cleaning company had take or pay contracts with commercial buildings. Rachel had individual consumers on month to month memberships. Consumer subscription stickiness is harder to achieve. The average member stayed for fourteen months, and the churn rate was just under seven percent a month. The buyer modeled that as a seven-year average customer life. Luna: Seven percent monthly churn is about sixty percent annual churn. That's not low for SaaS, but for a local service business it's remarkable. Most dog daycares lose customers after a year because the dog ages out or the owner moves. Lucas: Rachel reduced that by building a community layer. She had a private Facebook group for members, monthly events like 'yappy hours,' and a birthday card for the dog. Sounds fluffy, but the data showed members who attended at least one event had a twenty-three percent lower churn rate. She also sent a survey after the first month and found that ninety percent of cancellations were due to life changes — moving, new job, dog health — not dissatisfaction. So she built a 'rejoin' campaign that emailed former members three months later. Ten percent came back. Luna: So the buyer looked at that and said, 'We can port this system across twenty more locations and double the retention on existing sites.' That justifies the multiple. Lucas: Exactly. The buyer's underwriting assumed they could increase same-store sales by thirty percent just by converting existing transactional customers to memberships. That alone added about three million in incremental EBITDA across the platform. The hundred-times multiple starts to make sense when you realize the purchase price was effectively a platform license fee. Luna: I want to go back to the data system Rachel built. She didn't come from tech. How did she start tracking? Lucas: She used a Google Sheet for the first eighteen months. Then she hired a freelance developer from Upwork for five thousand dollars to build a simple web app that synced with her payment processor. That app became the core of her operations. By the time she had three locations, she had two years of transaction-level data on over four thousand customers. She could tell you the average number of visits per member per month, the average spend on add-ons, the referral source for each customer. Luna: That data is gold for a roll-up. Most small businesses don't have that. They know their revenue and maybe their top ten customers by name, but not cohort-level retention. Lucas: Right. The buyer told me that in their due diligence, they benchmarked Rachel's data against their existing portfolio. Their other daycares had transactional models with no membership data. They couldn't calculate customer lifetime value beyond a rough guess. Rachel had it calculated precisely — average member LTV of four thousand two hundred dollars. That made the two hundred million dollar valuation feel like a bargain to them. Luna: Let's talk about the negotiation. Was there a earn-out? Because a hundred times on trailing EBITDA seems risky if the system doesn't transfer. Lucas: There was. Rachel took forty percent of the purchase price in cash upfront — eighty million. The remaining sixty percent was structured as an earn-out over three years, tied to the membership conversion rate across the combined platform. If the buyer hits a seventy-five percent conversion rate across all locations by year three, she gets the full amount. If they miss, it scales down. Luna: So she's essentially getting paid to be a consultant for three years. That aligns incentives perfectly. Lucas: She's now the chief membership officer at the parent company. She told me she spends most of her time training other location managers on her CRM and the event playbook. She still runs the Austin stores but now oversees the rollout to the other seven brands. Luna: And the buyer is happy because they're paying for a proven playbook. It's a smart deal structure. Lucas: Yeah. And this is a pattern we're seeing more often. Buyers are paying up for data-rich businesses with recurring revenue, even in seemingly mundane industries. Dog daycare, laundromats, plumbing — if you can prove customer stickiness with numbers, the multiple goes up. Luna: Quick honest thing — we're able to dig into deals like this because this show is listener-supported. A handful of listeners chip in monthly through buy me a coffee dot com slash fexingo, and that literally funds making this many episodes. If these conversations have moved your work forward in some small way, that's the reason to consider joining them. No ads, no sponsors, just the show you want. Lucas: Yeah, it's a small group that keeps it going, and it makes a real difference. So thank you to everyone who does. Luna: Alright, back to the dog daycare. One thing I'm curious about — what happened to the employees? Four locations, probably fifty staff. Did they get equity or retention bonuses? Lucas: The buyer put in a retention plan for key staff. The general managers at each location got a three-year bonus tied to membership growth. The frontline workers didn't get equity, but they got a wage bump and a clearer promotion path. Rachel made sure the buyer committed to keeping all locations open for at least two years. Luna: That's important. In roll-ups, you often see cost-cutting that hurts service quality. If you gut the staff, the membership experience suffers and churn goes up. Lucas: Exactly. The buyer understood that the membership model relies on consistent service. If a dog has a bad day because a new untrained employee is rough, that member might cancel. So they kept the training programs Rachel had in place. Luna: So for a business owner listening, what's the one takeaway? If you want a premium multiple, start tracking customer behavior now, even if it's just a spreadsheet. Lucas: That's it. Rachel's spreadsheet turned into a two hundred million dollar exit. You don't need a venture-backed tech stack. You need discipline to record every interaction and then analyze it. The buyer isn't paying for your dog daycare. They're paying for your data on who your customers are and why they stay. Luna: And maybe a little bit for the dog birthday cards. Lucas: Maybe. But the data proves the cards work.