A Landscaping Owner Fields Private Equity Roll-Up Offers

Financial Snapshot

• Revenue of about $4.1M: $2.9M in landscape maintenance and installation, $1.2M in mosquito and tick treatment sold as prepaid seasonal packages
• Adjusted EBITDA of about $850K after normalizing owner compensation and documenting add-backs
• S corporation, 100% owned by Rick, with 34 employees in season and 14 trucks and trailers carrying about $120K of remaining tax basis after bonus depreciation
• Shop and yard held in a separate LLC worth roughly $650K, leased to the company
• Household investable assets of about $1.3M: $900K in retirement accounts, $400K taxable, home paid off
• Latest LOI: 5.2x adjusted EBITDA, roughly $4.4M enterprise value, structured as 70% cash, 15% seller note, 15% rollover units in the platform holdco
• Target spending in retirement: about $14K per month

The Challenge

The headline number looked like retirement. The structure said otherwise. As an add-on, Rick's company prices at 4.5x to 5.5x EBITDA while the platform itself trades meaningfully higher; that spread is the roll-up's business model. Thirty percent of his price was paper: a subordinated note and holdco units he could not sell. The buyer required an asset sale, which triggers ordinary-income recapture on a fleet bonus depreciation had already written off. And a quality-of-earnings review was coming for his seasonal, prepaid revenue.

Our Approach

We started by pricing the deal the way the buyer does. Platforms with $10M or more of EBITDA trade at substantially higher multiples than an $850K add-on; the spread is the sponsor's arbitrage. Understanding that set realistic expectations on the cash multiple, and it reframed the rollover units as the piece that lets Rick participate in the platform's higher multiple at the eventual sale.

Second, we prepared for quality of earnings before diligence started. The mosquito line is prepaid seasonal revenue, so we worked with Rick's CPA to present deferred revenue correctly, build a monthly seasonality bridge, and support every add-back with documentation. An adjusted EBITDA figure that survives QoE protects the multiple. One that collapses in diligence reprices the whole deal.

Third, we modeled the asset sale the buyer required. For an S corporation, gain allocated to the fleet above its remaining $120K basis is depreciation recapture taxed at ordinary rates under section 1245, while goodwill and customer-based intangibles flow through as capital gain. That makes the purchase price allocation a tax negotiation, not paperwork. The draft LOI also stacked $400K into a consulting agreement and $300K into a noncompete, both ordinary income. Counsel concluded a personal goodwill allocation was supportable given Rick's direct customer relationships and the absence of any prior noncompete, and part of that ordinary-income stack was renegotiated into purchase price.

Fourth, we treated the paper like paper. The seller note was subordinated to the platform's lenders, so we negotiated interest and acceleration terms and assumed it might pay late or not at all. On the rollover units we asked what matters: unit class versus the sponsor's, distribution rights, drag-along terms, and treatment in a recapitalization.

Finally, we built the after-close plan. We negotiated a market-rate, multi-year lease on the shop before signing, keeping roughly $55K a year of rental income. We mapped Roth conversions for the low-income years between the sale at 57 and Medicare at 65, sized each year against the brackets and future IRMAA thresholds, and used our Compound Cultivator methodology to ladder the cash at close: near-term spending in Treasuries, the balance invested for the decades the plan has to fund.

Projected Outcomes

Net cash understood before signing: On a $4.4M headline, cash in hand at close, after estimated taxes, recapture, transaction fees, and a 10% escrow, penciled to roughly $1.9M to $2.2M under conservative assumptions. Seeing that number early reframed the negotiation.

Ordinary income contained: Moving most of the consulting and noncompete stack into purchase price and a supportable personal goodwill allocation was designed to potentially shift several hundred thousand dollars from ordinary rates to capital gain rates, an estimated federal difference of $60K to $120K.

Plan independent of the paper: Cash at close plus shop lease income was designed to support about $14K per month of spending without counting the seller note or the rollover units.

Conversion window mapped: Roth conversions between ages 58 and 64 were designed to potentially reduce lifetime taxes and later Medicare premium surcharges, filled bracket by bracket each fall.

Methodology

This is a hypothetical composite illustration, not an actual client, and the numbers are simplified. Real roll-up transactions turn on diligence findings, working capital pegs, and legal terms that move outcomes materially. For owners fielding unsolicited LOIs we typically run a readiness review before responding, coordinate with the CPA and deal counsel through close, then meet quarterly, with a full tax projection every fall while the conversion window is open.

Related Reading

• Selling Your Business
• The IRMAA Cliff Explained
• Backdoor Roth IRA and Roth Conversions

Frequently Asked Questions