Selling our rehab business as a going concern

[Chris Johnson]

I am currently rehabbing homes in the New Orleans market and have done so for several years. Our typical rehab is an historic home renovated from the studs out and will sell for between $200-400K. Gross sales in 2013 will be around $3MM. We are running about 34% gross margins and after interest, hard money, investor splits, and expenses we net about half of that for an EBITDA in the $500K range. Here is my question:

Can anyone here share their experience with capital structure in the sense of turning the corner toward making a saleable business out of this? We are not holding properties at this time and are not near big enough to become or sell to a REIT.

In the upstream oil business we would routinely buy mom and pop small businesses for a multiple of EBITDA based on the stability, scalability, and transferability of the revenue. That was generally in the 3-6x EBITDA range and was paid as part cash, part stock or with an earnout. Does anyone know of something similar in this business?

Any and all comments on this would be welcome. I ask because I am planning my exit strategy and also trying to figure out the best way to add equity investors to our equation.

Chris

[J Scott]

Chris -

It's not clear to me what the value proposition would be to a potential buyer. Employees and a set of processes isn't going to be especially attractive without an established brand, intellectual property, a competitive advantage (other than your employees who aren't guaranteed to remain with the company), etc.

Perhaps you have these things, but if so, you haven't mentioned it.

As someone who has spent a decent amount of my career doing M&A for some very large companies, I'm not sure there is anything in a typical rehabbing business (again, without an established brand, IP, or a proprietary competitive advantage) that would make your business worth much more than the cash the business had on-hand plus inventory.

Without those things, it would be almost as easy to launch a new competing business as it would be to buy yours (you say yourself that your formula is no secret, indicating there is nothing proprietary about your rehab business).

Maybe I'm missing something...