Appraising a route

[mission vending]

I am currently in discussions to possibly buy a full line route from an individual. We are trying to determine a fair way to appraise his route.

Ideas that we have discussed:

1. Using excel spreadsheet valuator from NAMA. How to determine value of goodwill is the main sticking point.

2. Using rule-of-thumb approach of 50% of annualized cashflow plus value of equipment and assets inventory etc.

3. Work out purchase on a location by location basis and then fallow equipment

Has anyone else here purchased a route before? How did you go about it determining value?

The route in question is within spitting distance of 150K annually.

Ant thoughts would be appreciated either here or msg.

[mxer518]

I have purchased a few routes in the last few years, What I always do is break it all down, the cost of buying a new location, machine fair market value, and then I usually add about 10%. Very few times I have had to do this since the selling price was lower than this equation would have produced. It seems its never as easy as a simple equation, I hear some many people that say double gross is fair, which could be true if it has the right equipment and contracts in place, but in most cases this will be way to high. I always like to see a route pay for itself on 50% of net within 5-6 years.

[Poplady1]

I have purchased many routes in that price range and higher.  I always rode the route each service day with the route driver for atleast 30 days.  I followed the money right thru to the bank.  Once I had a good feeling for the locations, the equipment and the income, we discussed the purchase agreement, worked up the paper and I signed the check.  Within the next 48 hours I would change every lock to a high security lock. 

There are several solid routes for sale in California right now.  Many companies are downsizing because they need to reduce staff and trucks.  If they have a route making $150K most would ask for 80% of one years gross. That was my rule of thumb when purchasing a route, 80% of one years gross.  Sometimes if you are buying a single location that can be alittle more expensive. 

Many times operators will have 3rd party soda machines on the route.  You need to be aware of those machines for a number of reasons.  If the route has a lot of those machines it will reduce the value of your investment a great deal.  Remember the most important thing of value you get when you buy a route is the value of the equipment.  That is what a bank or lender needs to see, something tangible they can sell. 

This is my two cents.

Blue Moose

[oldcity]

i agree that 80% of yearly gross is usually a fair market value for an established route.

however i think that the value of a location is equal or more important than the value of the equip.

if you put the best equip. in a lousy location it won't make it an excellent location , but don't put a lousy equip. in an excellent location.

that's my two cents.

hope it helps.

[Poplady1]

Oldcity,

If you have good equipment in a poor location, you need to relocate the equipment.  Also, if you have poor equipment in a good location you need to upgrade it before another vendor comes in to replace you.

The value of the location is the equipment in the banks eyes. I have filled out many applications at the bank and believe me they look directly at the value of the equipment.  And yes banks do lend money to vending operators with established credit, certified tax returns and letters of reference from your larger accounts. 

Blue Moose

[gogo]

I'm coming in a bit late here, but I'll throw my two cents in.

I recently bought a full-line route with 19 machines (9 drink, 7 snack, 1 coffee, 2 combos) on 9 locations grossing about $2500/month.

He was asking one year's gross, 30k.

We settled on 19k.

So we're talking about 65% of gross, which I think is a pretty good deal.

Most of the machines are fairly new refurbs, but a couple had some lingering maintenance issues that I was stuck dealing with.

Other sellers in my area did not take offers of 75-85% of gross for their routes, but they are the same people advertising months later still trying to sell.

Valuing a business is such a quirky thing.

I would encourage you to use the popular formulas as a starting point and then decide what is important to you in the deal and fine-tune it based on that. What do you place value on? Efficiency of the route? The breadth and stability of many locations? Well-cared for machines?

Definitely spend plenty of time riding along and do a thorough inspection of the equipment. Maintenance costs can eat you alive. Machines that obviously need work to be brought up to par can be a bargaining chip for the buyer.