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Business For Sale - Cleaning Supply Distribution

1,543 Views | 7 Replies | Last: 2 yr ago by Irish 2.0
BizBroker97
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AG
I'm representing a Cleaning Supply Distributor based in North Texas. Asking price is $5.5M, which includes the $3.25M property the business operates from. The business is valued at $2.25M, and comes with $500K in inventory and $965K in FF&E. EBITDA was nearly $750K on $3.7M in revenue last year. Multiple trusted SBA lenders have pre-qualified this deal with 10-15% down.

My email is listed in my profile. If you'd like to get more details on this acquisition opportunity, drop me a note and I'll send you the NDA.
phorizt
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I'm a small business owner but kind of new to it so don't know anything about selling a business other than a couple of books I've read.

So this deal has 4,750,000 in physical assets and the sales price is $5.5 million. Is it common to sell a business for Assets + 1 year of EBITDA? Seems like a great deal if it is a stable business.

agdaddy04
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AG
phorizt said:

I'm a small business owner but kind of new to it so don't know anything about selling a business other than a couple of books I've read.

So this deal has 4,750,000 in physical assets and the sales price is $5.5 million. Is it common to sell a business for Assets + 1 year of EBITDA? Seems like a great deal if it is a stable business.



Seems entirely too good of a deal. Typical distribution deals I've seen are 5x ebitda.

Edit: well now looking at it, it may be at a slight discount but not crazy. I don't believe inventory is typically added to a sales price on a deal like this. This could be a great opportunity for someone.
BizBroker97
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phorizt said:

I'm a small business owner but kind of new to it so don't know anything about selling a business other than a couple of books I've read.

So this deal has 4,750,000 in physical assets and the sales price is $5.5 million. Is it common to sell a business for Assets + 1 year of EBITDA? Seems like a great deal if it is a stable business.


Every deal is unique because the operating metrics required for every business are unique. But generally speaking, whatever a business utilizes to operate is included in the sale price. Buyers are acquiring a going concern, and to be considered a going concern whatever a business uses to generate its revenue is part of the sale.

In this case, typical inventory levels required to operate are $500K and the FF&E used to operate is valued at $965K. The argument is that this business would not generate $3.7M in revenue and $750K in EBITDA without maintaining that inventory level and FF&E value, therefore it's part of the going concern.

By contrast, a different distribution business with the same revenue and EBITDA may operate with much less equipment or on thinner inventory amounts - the valuations would still be relatively the same because the multiple of EBITDA will still relatively the same.

Also, in this case the real estate makes the ratios look different - the business value is $2.25M.

And keep in mind, $750K was last year's EBITDA - valuations aren't based on one singular year. When you blend multiple historical years' results, as well as considering the current year projections and the LTM snapshot, the weighted EBITDA is not $750K. So the actual multiple of EBITDA used is higher than it appears.
Irish 2.0
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I feel like a cleaning supply company in 2020 revenue might be significantly higher than the aggregate of say five years prior due to COVID.

What was 17-19 like?
Buford Tannen
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AG
Is that adjusted EBITDA?
BizBroker97
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Irish 2.0 said:

I feel like a cleaning supply company in 2020 revenue might be significantly higher than the aggregate of say five years prior due to COVID.

What was 17-19 like?
While it is in the "cleaning" supply business, this particular company doesn't serve industries where disinfectants and PPE were in significantly higher demand that in prior years.

The business has averaged 8% annual revenue growth since 2017, with 2020 up about 12% from 2019. Just a steady, growing business.
BizBroker97
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albatross said:

Is that adjusted EBITDA?
Yes. The way we define adjusted EBITDA includes the seller's personal benefits paid by the business, including salary. This is assuming the seller maintains a role that can be absorbed by the new owner or the current staff, or a combination of the two.

Since businesses this size are almost always acquired by individuals who will operate the business in essentially the same manner as the seller, we consider those personal benefits to be part of adjusted EBITDA. In larger businesses where the owner is going to be asked to remain for an extended period or the purchasers will likely be hiring a replacement for the exiting owner, we make a salary adjustment to actually EBITDA to account for that expense going forward, if necessary.
Irish 2.0
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BizBroker97 said:

Irish 2.0 said:

I feel like a cleaning supply company in 2020 revenue might be significantly higher than the aggregate of say five years prior due to COVID.

What was 17-19 like?
While it is in the "cleaning" supply business, this particular company doesn't serve industries where disinfectants and PPE were in significantly higher demand that in prior years.

The business has averaged 8% annual revenue growth since 2017, with 2020 up about 12% from 2019. Just a steady, growing business.
Gotcha. Thanks for the information. Wasn't trying to call shenanigans, it was just a glaring observation I had w/o the added detail.
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