How Much Should I Pay For a Large Vending Route?

[CoCaptainofTeamLadyBug]

Is there an "industry standard" for the buying an existing route? For example, the pool service business works off of a multiplier of 9-12 depending on your area. If the monthly service income for one pool is $100 a month, then that one pool should sell for $1200. Is there a similar logic to vending?

If a route that I'm looking into purchasing makes around $100,000 on paper, what is a reasonable amount to offer and pay for this route?

Any tips will help!

[AZVendor]

There are no set rules for this.  The ultimate value of a route is what someone is willing to pay.  Sellers often start at 1 yrs gross sales but there are many factors to consider.  As a buyer you should put a premium on a route that has quality equipment, that is well-maintained, has bill validators on each machine, all lights work, price labels are in place, and maybe some card readers are in place.  Location contracts add value as does the quality of the route vehicles.  Drawbacks to the value is high commission rates to locations, a route that is too spread out, and negative aspects opposite of what was just said.  High prices in the machines are good but below market prices are a red flag.  If this is a substantial purchase for you then you need to require to see the books and the seller's tax returns to support his sales and commission claims.  Expect to sign a non-disclosure agreement and maybe a non-compete agreement before you see their books.  

[CoCaptainofTeamLadyBug]

Thank you for your response!

We toured the route and the seller does seem to have solid equipment in place, and all are in good working condition. There are eports, ADA compliant, nicely maintained, etc.

However, there might be one drawback we've encountered. The vendor in place originally had this location negotiated for by a business partner, whose name is now on the contract between the vendor and the location.  We have obviously never met this person. The seller has come to us and stated that in order for this sale to take place, they would want to keep the original business partner on the official contract, even though a bill of sale between us would stipulate the sale of the location, machines, etc to us.

The reason for this, they say, is to keep the location happy and not rock the boat. If they come to the location and tell them there is a sale, they worry that the location could get upset, and they don't want to ruin a good thing (this location does pretty heavy monthly volume). The seller has stated that he will notify the location that we are the new operators, but when it comes to the contract itself, the original business partner will have his name and company on it.

There IS a contract in place, which has two years or so left on it, and after that is set to auto-renew for one year, every year after that.

From our perspective, we wonder where that puts us. Should we significantly lower our asking price because of this? Is this type of transaction standard in the vending world for larger accounts? We are a little gun shy of operating the account if there is somebody else's name on it, although I would assume that person is taking on considerable risk as well, since he doesn't know anything about us or our operation.

We are also considering offering a large chunk up front and giving them the other chunk after the two year contract is up, that way they have some skin in the game and can act as out "middle man" of sorts between us and their business partner.

I'm very curious to hear your response!

[57thTom]

Talk to a contract lawyer.

[Central Kentucky Vending]

years ago 1 year of gross but now days more like 50% of gross is the going rate

[Bvending]

 We've bought 4 "routes" over the past 3 years. We've paid between 30-50% of yearly gross.  The one exception was a location we bought that had brand new equipment in place for only 2 weeks ( the guy had an accident and could no longer service) so we paid the amount of the new equipment. He said it would do $500 a week and we've been pulling $700+. 

As far as keeping the original person on the contract, something seems off to me. I personally wouldnt do a deal like that

Edited May 5, 2018 by Bvending

[orsd]

7 hours ago, CoCaptainofTeamLadyBug said:

Thank you for your response!

We toured the route and the seller does seem to have solid equipment in place, and all are in good working condition. There are eports, ADA compliant, nicely maintained, etc.

 

What makes and models?

There are some pretty new models out there that are complete garbage.

[CoCaptainofTeamLadyBug]

Futura Combo model 3548.

[57thTom]

Is there a lean on the machines?

[AZVendor]

The Futura machines are made by USI/Wittern but they aren't supported like real USI machines.  They have a operating manual online but no parts manual so you will be on the phone with Vendnet when you need help.  That's not a bad thing but no one can help you with then but for Vendnet.

[Southeast Treats]

If that location is the moneymaker of the route, then leaving the contract in someone else's control would be a deal breaker for me.  The contract should have a transfer clause in it that allows it to move with the ownership of the company, or have been done in a corporate name that you would acquire in the transaction.  On a deal of this size, I would probably seek out a good business attorney to do all the paperwork and a closing on the deal, and would seek good legal advise about the issue with this location.

[putrevus]

On 5/5/2018 at 5:03 PM, Bvending said:

 We've bought 4 "routes" over the past 3 years. We've paid between 30-50% of yearly gross.  The one exception was a location we bought that had brand new equipment in place for only 2 weeks ( the guy had an accident and could no longer service) so we paid the amount of the new equipment. He said it would do $500 a week and we've been pulling $700+. 

As far as keeping the original person on the contract, something seems off to me. I personally wouldnt do a deal like that

So there is no resale  value for this business??? 

[Bvending]

2 hours ago, putrevus said:

So there is no resale  value for this business?

As others have stated, quality equipment, sales records, contracts, etc all add value to your business. The routes we bought had alot of good locations but poor equipment. We offered low because we knew there would be equipment upgrades needed.

One company approached us about buying him out almost 2 years before we bought him. He was asking way too much for what he had (90k yearly gross asking price was 100k with average to poor equipment). He bugged us for almost 2 years and finally told him 30k take it or leave it. With some upgrades ( machines and cashless ) and good service those same stops are right around 180k.

My point is that if you want to sell one day, you need to keep up with the times. Upgrade equipment and keep current with technology and pricing