What is a reasonable price for a mat?

[Skipper]

I'm currently negotiating on a mat in north FL. The seller's asking price is 150% of prior year revenues or $975,000. His SDE (EBITA) is 27% of sales so his cash flow is $175,000. He is asking a 5.5-5.6 multiple of SDE and he is awaiting my counteroffer.

According to the 2012 Business Reference Guide (BRG), this is the high side price of a well run mat in a good location with good equipment and a good lease (all these elements exist). It suggests a price of 100 to 150% of gross sales and 5 to 6x SDE. If I was the seller, this is where I would price it.

However, Bizcomps actual reported sales prices is significantly lower than what BRG suggests. Bizcomps is showing the average mat sells for right at annual gross sales and a 2.4 to 2.8 multiple of SDE (depending on dates/region). Bizcomp puts the average sales price at $490,000 (2.8 x SDE) to $650,000 (annual gross). Both these numbers are a far cry from $975,000. In fact, the Bizcomps low end less than half the BRG high side.

I'm having trouble reconciling the BRG pricing and the numbers reported in Bizcomps. A multiple of 2.4x to 6x is a HUGE difference. Did you pay more than 2.4 to 2.8 SDE for your mat and, if you did, are you making a living?

My analysis indicates I should counter with an offer of $490,000 (SDE x 2.8), but I'm sure he will laugh me out of the building coming in $485,000 under his ask price. Is it unreasonable to consider having the store paid off in 4 years if I have 100% financing and don't take a salary (and pay no taxes)? If it takes 4+ years of earnings to break even, I don't think a mat is a good choice for me. Thanks in advance!

[CanCanCase]

I'm going to skip all the overly-paralyzing analytical numbers you've thrown out and get right to your last paragraph... wherein you answer your own question, I believe.

Yes, it is unreasonable to consider having the entire store paid off in 4 years.
With 100% financing, what's your backup plan if business takes a dive or you need to replace a critical piece of equipment?
Why wouldn't you take a salary? You're buying a 20-100+ hour per week job.
Pay no taxes? Do you mean defer all of your taxes, or truly pay none?

If you're really willing to spend a half million or more and work your butt off for someone else (the bank?) for 4 years, I've got a job I'll sell you...and it comes with a large bridge as a bonus.

-Case

[Howard]

THIS SOUNDS LIKE THE BEST DEAL FOR A LAUNDROMAT I HAVE EVER HEARD OF ---- FOR THE SELLER!!!

I would not even insult him with an offer. I would tell him that you have done your research and found that laundromats typically sell for 3 to 4 times net and that you would be happy to discuss with him when he sets a reasonable asking price. Suggest he provide some comparable sales data to justify his price.

I would venture to say you two will never have a meeting of the minds on price when he is so far in the clouds. Maybe price is valid if he is also selling drugs under the table.


BTW - you could care less about gross or multiples of gross, you only care about net.

[Adamski]

Originally Posted by Skipper

I'm currently negotiating on a mat in north FL. The seller's asking price is 150% of prior year revenues or $975,000. His SDE (EBITA) is 27% of sales so his cash flow is $175,000. He is asking a 5.5-5.6 multiple of SDE and he is awaiting my counteroffer.

According to the 2012 Business Reference Guide (BRG), this is the high side price of a well run mat in a good location with good equipment and a good lease (all these elements exist). It suggests a price of 100 to 150% of gross sales and 5 to 6x SDE. If I was the seller, this is where I would price it.

However, Bizcomps actual reported sales prices is significantly lower than what BRG suggests. Bizcomps is showing the average mat sells for right at annual gross sales and a 2.4 to 2.8 multiple of SDE (depending on dates/region). Bizcomp puts the average sales price at $490,000 (2.8 x SDE) to $650,000 (annual gross). Both these numbers are a far cry from $975,000. In fact, the Bizcomps low end less than half the BRG high side.

I'm having trouble reconciling the BRG pricing and the numbers reported in Bizcomps. A multiple of 2.4x to 6x is a HUGE difference. Did you pay more than 2.4 to 2.8 SDE for your mat and, if you did, are you making a living?

My analysis indicates I should counter with an offer of $490,000 (SDE x 2.8), but I'm sure he will laugh me out of the building coming in $485,000 under his ask price. Is it unreasonable to consider having the store paid off in 4 years if I have 100% financing and don't take a salary (and pay no taxes)? If it takes 4+ years of earnings to break even, I don't think a mat is a good choice for me. Thanks in advance!

Skipper,

It appears the subject store is grossing $650,000 and netting $175,000. The best way to value a laundromat is to take the net and then adjust it by adding back things like depreciation, seller's draw or wage, seller's car expense, etc. Then you apply reasonable appraisal factors to reflect the condition of the equipment, the current lease and certain amenities. The result will likely fall within a range of 2 to 5.5 times adjusted net. Although this description is quite general, you can email me at laundromatman@comcast.net for more guidance.

[mellofelow]

Based on all those figures, I'd have to say that's a pretty healthy store. Although that's a pretty steep price, it's very much the norm even around here in SoCal.

What's the reason for selling? Is the current owner motivated? Is the seller a distributor?

People just don't walk away from a goldmine.

Have you owned a mat before? That's an awful big first bite.

[Skipper]

OK, I'm getting mixed answers from you all. The store nets $175k after adding back owner's salary and depreciation and other non cash items. It grosses $650k. The owner is ready to retire and is tired of the rat race. It's a healthy store and the earnings are consistent over the last 6 years. The only blemish is utilities are 36% of sales. This is why he is looking at a multiple of gross and not net. Per the owner, he is the low cost provider in the city and the biz model is working. Equipment is 40% through its service life. Lease is set for another 10 yrs at 11% of sales (if sales hold).

Howard, 3 to 4x net is $525k to $700k. Adamski, 2 to 5.5x net is $350k to $963k, Not that far from the seller's asking $975k. Case, if a store sells for 5.5x earnings, it's going to take 5.5 years to generate the funds to pay for it (before salary and taxes and depreciation). I'm just trying to find a reasonable counter offer. No, I've not run a mat, but I've run several other businesses. This is FL and not CA. That's perhaps where I need the advice.
Thanks for the help.

[jh]

27% sounds a little bit low. I hope the repair/maintenance cost has already been deducted. It sounds like an awfully big store with lower pricing ($1.50 for a 20lb. washer?). It must also be packed during weekends.

[chad]

If the machines are less then 2yrs old then 5.5 for a high grossing store is right.

[Howard]

Originally Posted by chad

If the machines are less then 2yrs old then 5.5 for a high grossing store is right.

No way. That two year old store is probably at its peak, and has no place to go but down. You will be very sorry down the road if you pay that much.

[jh]

Originally Posted by Howard

No way. That two year old store is probably at its peak, and has no place to go but down. You will be very sorry down the road if you pay that much.

Huh? Sounds like my store is at its peak. I was hoping the revenue would continue to grow into the third year. I don't think I would be selling it (even at 5.5) until I'm sure the revenue will not be going uphill.