Which deal would you choose? Pond maintenance or auto detailing?

by a searcher from Harvard University

2 years ago

We're looking at two potential deals for our next acquisition, and wanted to get the community's thoughts on which would be a better choice. 

Opportunity #1:
Residential/HOA/Commercial pond maintenance
EBITDA ~$750,000
Revenue growing at 30% y/y
50% of revenue is from ongoing maintenance contracts
Priced at 2.5x
No middle management, owner works 60 hrs/week managing all sales

Opportunity #2:
Car detailing business
Low barriers to entry, but good reputation
EBITDA - $600,000
Revenue doubling y/y, but close to maxing out capacity at facility within 6-12 months
Priced at 3.5x
Good middle management, owner is able to work "on" the business instead of "in" the business
Some small overlap with the business in our existing portfolio

If that's all the information you were given, which would you choose?

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11 comments

searcher from Carleton University

There's tons of great advice above, to lean upon. Beyond the numbers, I'd encourage an appreciation for: (a) which business is a better fit for you, (b) what are the temperaments of the vendor, (c) what are the drivers of growth and what type of revenue stream is being grown (contractual or otherwise) and the impact on your exit multiple. Appreciate the scenario is presented in a vacuum, but my $0.02.

2 years ago | like reply | 0 likes

searcher from The University of North Carolina at Chapel Hill - Kenan-Flagler Business School

#1 but I'd be interested in knowing why only 50% of revenue is from ongoing contracts. Seems like the type of service you could lock into some long term agreements.

2 years ago | like reply | 0 likes

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