Buy-in numbers for a two person title shop, 31 files a month and one escrow officer

An owner I've known for a while wants to sell me 40 percent of her agency and step back over three years. She gave me two years of numbers and I've been staring at them for a week.

Trailing twelve: 372 closed files, average revenue per file $1,910 including the agent's retained premium share, settlement fee, and ancillary charges. That's about $710k of revenue. Mix is roughly 70 percent purchase, 30 percent refi. One escrow officer at $68k plus benefits, one part time processor, the owner doing search, exam, and everything else. Owner comp is $145k. After rent, E&O, software, and remittance, she shows $188k of owner earnings before her salary.

Asking price for 40 percent is $310k, which prices the whole thing at $775k, a bit over 4x that earnings number.

What bothers me. Roughly 44 percent of files last year came from two agent teams and one lender. The escrow officer is 61 and has said out loud that she's thinking about three more years. And the owner personally does the exam work, which is the part I can't do yet and would have to hire for, probably $75k to $90k in my market.

So the earnings I'd be buying into are partly her unpaid second job. Add an examiner and the $188k is closer to $105k, and 4x on that is a very different price.

I don't know whether to argue the multiple or argue the earnings number. Or whether the concentration makes both arguments moot.

4 replies

1angela_burkeServicePRO6

Argue the earnings number, not the multiple. Multiples are an argument about opinion and you'll lose it because she's been told 4x by someone. The examiner cost is arithmetic and she can't wave it off, because if she leaves in three years the work still has to happen and someone has to be paid to do it.

The part I'd push harder on is the 44 percent concentration. Ask what the retention looks like on those relationships when she's not the one taking the call. In small service businesses the relationship usually sits with a person, and you're buying a minority stake in that person's phone. Also ask what happens to your 40 percent if she exits earlier than three years, because that clause is the whole deal.

2renee_dubois Get yours

31 files a month with one escrow officer is running near the top of what I understand a single closer handles. Which means growth requires a hire before it produces revenue. Did she show you any month where volume spiked and something broke?

1monica_tran3SF4CPRO6

The 61 year old escrow officer is the number that would keep me up, more than the exam hire. Escrow officers with local lender relationships and clean trust account habits are genuinely hard to replace, and the replacement takes six months to get to full speed while your files are in the air.

Build both hires into your model at the same time and see what's left. If it's $80k of earnings on a $775k valuation, you're not arguing about a multiple anymore, you're arguing about whether the business exists without her.

Even so, a shop doing 372 files with steady referral relationships is a real business. I'd rather buy that at an honest price than build one from zero.

2angela_burkeServicePRO6

@thatch is right that succession on the closer seat is the bigger hole. @beacon, one structural thing: if you buy 40 percent you have no control over hiring, comp, or distributions unless the operating agreement gives it to you. Minority stakes in small service companies go wrong on governance more often than on price. Have a lawyer draft that side of it before you spend another week on the multiple.

Buy-in numbers for a two person title shop, 31 files a month and one escrow officer

4 replies