Latest / The Buyer & Seller Podcast with Fexingo: Business Brokers, Exits, and Private Sales Explained / Why This Dental Lab Sold at 18 Times EBITDA
Transcript
- Lucas: So I was digging through the deal sheets from a broker we've worked with before, and one sale jumped out at me. A dental lab in the Midwest sold for eighteen times EBITDA. And I had to double-check the number, because labs usually trade around four to six. Luna: Eighteen times? That's triple the norm. What made this one so special? Lucas: Well, before we get into that — and if you've gotten any value out of these conversations, even a few dollars a month genuinely keeps them going. Buy me a coffee dot com slash fexingo, if you've gotten something out of them. Luna: Yeah, it's a small thing that makes a real difference for an independent show like ours. Lucas: Alright, so back to this lab. It wasn't just any lab — they'd built a specialty in implants, which is the high-margin end of the dental lab world. And they had contracts with about forty dental practices, but here's the kicker: no single client was more than four percent of revenue. Luna: So they'd solved the customer concentration problem that we've seen kill deals in other episodes. Lucas: Exactly. And it wasn't just diversification — those contracts were sticky. Dental labs are something practices don't switch lightly because of the workflow integration. This lab had been around for twenty-two years, and the owner had a second-in-command who'd been there for a decade. So the business wasn't reliant on the owner showing up every day. Luna: That's huge. Key person risk is one of the biggest discounts we see on small deals. Lucas: And they had a real moat. They were one of only two labs in their region certified to handle a specific implant system, which meant they were the go-to for practices that used that system. So when the owner decided to retire, he had a buyer's market — but he also had three offers. Luna: Three offers? That must have driven the price up. Who were the buyers? Lucas: One was a regional competitor, one was a private equity firm doing a dental roll-up, and the third was a group of dentists who wanted to own their supply chain. The PE firm ended up winning, and they paid the eighteen times, but they structured part of it as a seller-financed note. Luna: So the owner didn't get all cash upfront. That's interesting — how did that affect the effective multiple? Lucas: Good question. The headline was eighteen times, but the seller-financed portion meant the owner was taking on some risk. The actual cash at close multiple was closer to twelve times. But the note carried a seven percent interest rate, and the owner was confident in the cash flows, so he accepted it. Luna: So the seller-financing actually enabled that headline number. Without it, the deal might have been lower. Lucas: Right. And that's a common structure in small deals — it bridges the gap between what the buyer wants to pay and what the seller wants to receive. But it only works if the business is stable enough to service the debt. This lab had three years of consistent EBITDA, even through the pandemic, because dental work rebounded quickly. Luna: How did they keep that stability? I'd imagine dental labs took a hit when elective procedures were paused. Lucas: They did — but this lab had a contract to also do orthodontic appliances, which weren't as elective. And they had a small line of digital dentures that they sold direct to a few overseas clinics, which gave them a little international diversification. It wasn't huge, but it smoothed the dips. Luna: So the multiples really came down to their revenue mix and the succession plan. Nothing flashy, but solid fundamentals. Lucas: Exactly. And that's what the PE firm was paying for — a business that could run without the founder, with sticky clients and a niche that competitors couldn't easily replicate. They'll roll it into their platform and probably fold in smaller labs over time. Luna: That's the classic roll-up play. But for a solo owner, what's the takeaway? Is it just about finding a niche? Lucas: Partly, but it's more about building the systems so that the niche isn't dependent on you. The owner had spent years documenting processes, cross-training staff, and he'd even brought in a part-time CFO a few years before the sale. So the financials were clean and the operations were transferable. Luna: That's something we've seen time and again — clean books and a strong team add more to the multiple than any growth hack. Lucas: And here's another thing: the owner didn't wait until he was burned out to sell. He started the process three years in advance, by hiring that second-in-command and shifting client relationships. So by the time he was ready, the business was ready. Luna: I think that's the quiet secret — most owners wait too long, and then they're selling from a position of weakness. Lucas: Yeah. This guy sold from strength. He had three offers, he picked the one that worked for his tax situation, and he even negotiated to stay on as a consultant for twelve months — at a daily rate, not a salary. That gave the buyer continuity without tying him to the business. Luna: So he got his cash, a nice consulting gig, and a clean exit. What did the buyer get? Besides the obvious assets. Lucas: The buyer got access to those forty dental relationships. That's the real prize. In the dental space, the practice owners are aging out, and the labs that serve them are consolidating fast. So this lab wasn't just a cash flow stream — it was a distribution network. Luna: That's a good point. We've talked about distribution winning over product before, and this is another iteration of that theme. Lucas: Exactly. The physical product — the crowns, the implants — that's replaceable. But the relationships with forty dental practices, that's the distribution. And the PE firm can now sell its other products to those practices through this channel. Luna: So the multiple isn't just about the current EBITDA — it's about the platform value. That's why they paid up. Lucas: Right. And that's something a small business owner can think about even if they're not in a roll-up. What's your channel? What's the asset that a bigger player might want to plug into their ecosystem? That could be your customer list, your location, your expertise. Luna: I've seen that with other niche service businesses too. A landscaping company with long-term municipal contracts sold for a premium because the buyer wanted the contracts, not the trucks. Lucas: That's a great parallel. And it's easy to overlook when you're inside the business, because you're focused on the day-to-day. But if you can articulate what a strategic buyer would pay for — not just the earnings — you have a shot at a higher multiple. Luna: For a dental lab, what would you say was the single biggest driver of that eighteen times? Was it the diversification, the niche, or the succession plan? Lucas: I'd say it was the combination, but if I had to pick one, it's the lack of key person risk. Because a buyer can see the numbers and the contracts, but the thing that keeps them up at night is whether the business falls apart the day the owner leaves. This lab had a proven second-in-command and a six-month transition plan. That gave the PE firm confidence to pay up. Luna: So for a seller, the lesson is: start building your bench years before you plan to exit. Lucas: Exactly. And I'd add: get your financials audited or at least reviewed by an outside firm before you go to market. This lab had three years of reviewed financials, which made the due diligence a breeze. That saves time and reduces the chance of the buyer re-trading the price. Luna: That's a practical step that a lot of owners skip. They think their accountant's numbers are fine, but a buyer's diligence team will dig deeper. Lucas: Right. And one more thing — the owner had a documented process for onboarding new dental practices. That showed the buyer that the growth was repeatable. When a new practice signs on, there's a checklist, a training plan, a dedicated account manager. That kind of operational rigor is rare in small businesses. Luna: So the multiple was really a reflection of the owner's discipline over twenty years. It didn't happen overnight. Lucas: No, it didn't. And that's the honest truth. There's no shortcut to an eighteen-times exit. But there are steps you can take — even if you're only a few years out — to move from a six to an eight, or an eight to a twelve. It's about making the business less dependent on you and more valuable to a strategic buyer. Luna: And that's a process you can start today, regardless of when you plan to sell. Lucas: Yeah. So if you're a business owner, look at your client concentration, your team, your financials. Ask yourself: if a buyer walked in tomorrow, what would they see? And then start fixing the gaps. That's the path to a premium multiple.