Should he sell his family business for $6 million?

Hey ,

Today we have another case study of a real world business that’s had an offer to be acquired.

Dan (26) and his father (65) run a cleaning business with $4.75m of revenue and 80 employees.

He’s recently had a buyout offer for $6m and is weighing up whether to say yes.

Here’s the full video from the EntreLeadership podcast on youtube if you want the full chat https://tinyurl.com/4raf4cry 

To assess if is this is a good deal we’ll use four parameters which you should also use for any acquisition offer:

1. Is this company easily sellable (what are the chances you get another offer)?

2. Is this a good price (relative to the niche) ?

3. Is the deal structure ok?

4. Does this fit your lifestyle goals and your future plans?

Let’s dive in:

It’s a much bigger company that has ample cash is is wanting Dan to stay on for a bit as an executive at the newly merged group.

1. Are you sellable?

Cleaning companies are actually quite acquisitive, they are often bought and sold because it’s a commodity business where integration is quite easy. Also private equity likes the recurring revenue which many of these companies have in their contracts. Overall this gives you leverage as the seller because buyers can show up relatively often, so you can wait for another deal.

Verdict: Not needed

2. Is the price good?

During the call he doesn’t say what his profit margins are, so we’ll assume it’s in line with the average for commercial cleaning companies in the USA at 15%, meaning profits of $712.5k on $4.75m of revenue. A $6m price tag represents a 8.4x profit multiple, a great deal considering the usual multiple is 4x.

Verdict: Great deal!

3. Is the structure good?

The structure is $4.5m cash and $1.5m earnout which the son will be doing in New York. This is another good structure, it’s almost all up front and the 26 year old co owner can easily handle a few more years in the industry while the dad retires

Verdict: Great deal!

4. Does the deal fit your lifestyle?

In terms of lifestyle, the dad wants to retire and this deal will allow him do to that. The son on the other hand wouldn’t mind taking up an executive position at the larger company in new york, but doesn’t plan to spend his entire life in the cleaning industry, so the earn-out plan fits these goals quite nicely

Verdict: Suits their lifestyles

So overall they’ve ticked three out of four major boxes, so I have to agree with Dave Ramsey in this video and give my blessings to this deal

For anyone wanting to have their own deals analysed professionally, drop us a reply anytime!

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