SMALL BUSINESS SELLING FOR BIG MULTIPLES
Most people assume that the larger the business (i.e. sales and cash flow) the higher the multiple will be when it is purchased. I was curious to see what the baseline Price to Discretionary Earnings (P / SDE) multiple was regardless of industry; so I did a search of all industries in the PeerComps database. What I found was the average business that sold generated $1MM in Sales, $290K in SDE, and sold for 2.8 X SDE. Working on the theory that the larger the business the larger the multiple, any business that generates more than $1MM in Sales and $280K in SDE should sell for a multiple higher than 2.8 X SDE and vice versa – right? Well the majority of the time that would be true . . . yet found an industry that completely defies this theory – Coin Laundries
A search of all Coin Laundries in the PeerComps database (42) yielded some interesting results. The Coin Laundry businesses that sold generated an average of $300K in Sales and $120K per year in SDE and sold for 3.32 X SDE. Compared to the average of all businesses in the database, Coin Laundries are almost 3 times smaller but sell for a multiple of SDE that is 20% higher. Further research shows there are a few key variables that cause this difference; Coin Laundries are a Recession Proof Operation, Generate Stronger Cash Flow Margins (23.6% v. 37.6%), and Require Minimal Owner / Manager Oversight when compared to the average small business. 
So, there you have it. . . another interesting data point from PeerComps. Subscribe to our Blog or click below to get free 24-hour access to the database.
