Earnouts – They Aren’t All Bad

Earnouts - They Aren't All Bad

Earnouts & Clawbacks – They Aren’t All Bad For Sellers

How Property Management Owners Can Benefit From These Structures


I call it the E-word. Ask any small business owner if they’d be interested in a purchase structure that involves an earnout and you won’t get pretty looks. Somewhere between “no way” and “probably not” is a small space where sellers should spend some more time.

Earnouts are not always a bad option for property management business sellers. Especially when you consider they are an integral component in achieving a higher selling price for your company.

An earnout is a contingent future payment based on performance milestones. For example, in a simple earnout arrangement, an extra payment of $50,000 to the seller may be earned by growing the company by an additional $500,000 in revenue in the first 12 months after closing. A clawback is a contract provision where the seller must return a portion of the sale proceeds if future benchmarks are not met or relationships die off.

Earnouts become a sizable point of negotiation when there is a difference of opinion on what future earnings will look like. I’ve had many seller clients tell me they would never accept an earnout. Some sellers will dismiss any purchase offer that includes one, even strong offers from viable buyers.

On the other side, I’ve have many buyers say they’d never buy a company without an earnout in place.

In the sale of management companies I see earnout structures as fair, reasonable and sometimes, a lifesaver to a deal. They often bridge a divide that has no other solution.

Ours are service businesses with usually no tangible assets beyond office equipment. What we are selling is a reliable income stream. One built on the foundation of recurring revenue. The buyer is purchasing property management contracts, maintenance contracts, property owner relationships, brand identity, employees, vendor relationships, a host of other intangibles.

From the buyer’s perspective, there is a ton of risk involved. The buyer is banking on the hope that property owners, employees, vendors, marketing professionals and many others will all remain in place upon a change of ownership. As we’ve seen in many deals, that often does not happen.

This is where earnouts and clawbacks can help PM business buyers mitigate enough risk that they feel comfortable moving ahead and closing a transaction.

An earnout can not only make the seller more money in the purchase. It can also ensure that they actually get a deal done. That’s a huge argument in their favor.  

Here’s one tidbit I’ll share from my 15 years of brokering deals. You might be surprised how few negotiations break down or fail due to price differences. Sure, the price is critical. But all the deal points that wrap around trust, transferability, continuity, verifiability and scalability are typically what make or break a transaction.


How do earnouts come into play?

Earnout clauses are not typically used for companies selling for under $2 Million or $3 Million. Smaller businesses usually have much shorter transition periods, where the owner sticks around for 30-90 days and then makes his exit. Plus, most buyers want to come in, operate the company independently and in their own way, keeping the good while throwing out the bad. Smaller businesses often have unaudited books or poorly organized financials, which makes measurements for an earnout difficult.

The primary advantage of an earnout is how it bridges the pricing expectation gap between the buyer and seller. In some negotiations the earnout simply dissapears from discussions when both sides realize it will be too cumbersome.

They work best when the earnout period is not terribly long. In industries like manufacturing, IT, health care or medical supplies, you’ll commonly see earnouts last 18 months to 3 years or longer. The timeframe is usually tied to how long the outgoing seller remains active in the business.

In property management business deals, the timeframes are shorter, usually from 6 to 18 months. During this time the seller wants to retain some control to make sure the earnout targets are met. Most sellers resist having their earnout payments tied to company performance if they aren’t actively working there anymore.

The amount of the earnout can go anywhere from 5% to 50% of the sale price. Most common is a 10% or 20% earnout. In a $1 Million sale transaction, a 20% earnout means the seller will receive the last $200,000 over the given period.

The earnout can be tied to many different performance indicators, such as gross revenue, gross profit, net income, EBITDA, number of management contracts retained, number of new properties signed.    

We recommend to sellers the earnout be linked to revenue. It’s the cleanest and easiest number to guide from. Buyers often want to tie it to earnings since that’s what they care about, in the end. But sellers have tremendous fear they will lose control of the company, profits will slip and their earnout amounts will suffer.

Lawsuits are quite common when a post-closing dispute arises over earnings. So tie it to revenues whenever possible.

When Is An Earnout Warranted?

So how do you know if an earnout is justified when selling your property management business? Always remember what the investor is actually buying. They are buying a future income stream and everything that creates it. They are buying the future by looking back at the past and assessing the present.

If the company has stable revenues, consistent earnings, a large number of contracts in place and the owner is making modest and reasonable projections about future growth, then an earnout is likely not warranted. The buyer’s risk is low and so is the need for an earnout.

In cases where the company is experiencing good growth in revenues and earnings, sellers are apt to make highly optimistic projections for the future – and want to get paid for that growth. This is where inflated seller expectations can drive up asking prices and create more need for an earnout. If a seller is dead-set on achieving a certain price, earnouts are often the best way to get there.

In some cases, especially with the coronavirus impacting many businesses, earnouts are used as a means to “emergency-proof” a sale transaction. A buyer might use them as protection during economic downturns or if a company is experiencing difficulties.

In property management sales, discussions often revolve around the number of management contracts and whether they will remain in place after the business is sold. After all, property owner/clients don’t know the buyer or his/her people or his/her way of doing business.

So the earnout becomes a powerful incentive for the seller to make sure that relationships are continued smoothly, with as little interruption as possible. It also incentivizes the seller to work hard in transitioning the staff, software, maintenance functions and all major operations to the new company.


One Frustration I Have

 Some PM owners occasionally want to straddle both sides of the earnout fence. On one hand, they are completely opposed to earnouts or clawbacks in their purchase agreement. But on the other, they are making incredibly rosy projections about revenues and earnings for the next year or two. So their demands for a high price are based on earnings that haven’t happened yet.

In that scenario, without an earnout or clawback, a reasonable buyer does not see a way to reach that price or mitigate risk. It’s important for sellers to know that if they estimate enormous future growth, they’d better expect earnouts.

Clawbacks became more common in business sales following the financial crisis of 2008. They usually involve a repayment as well as a penalty. Property management buyers ask for clawbacks if they experience a high number of property owners not renewing their agreements. Or employees not staying on following the transition. Or vendors who don’t continue relationships.

Because relationships are so valuable to a property management company’s performance, clawbacks are sought by savvy buyers who understand the purchase risks.

Most sellers resist clawbacks whenever possible. The idea of giving back money is not attractive. However, clawbacks can become a useful instrument, like an earnout, in achieving a higher sale price. If the seller is able to get a number that would otherwise be out of reach, the possibility of repayment becomes a more manageable seller risk.

Earnouts and clawbacks can both become valuable assets to a property management seller who’s open to their benefits and who fully understands their risks. 


This post intended for informational purposes only. It is not intended to constitute legal, tax or investment advice. There is no guarantee that any claims made are accurate or will come to pass. ManageVisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.


Top Tax Considerations in PM Business Sales

Top Tax Considerations in PM Business Sales

Biggest Tax Issues When Selling Your PM Company

Don’t Let Uncle Sam Step On Your Plans for the Future


Long before you try selling your property management company, you need to understand what costs are involved. I’ve seen over many years in business brokerage that some sellers have not taken the time to understand the tax implications of a sale.

Like any transaction that makes you money, the sale of a business is considered income and you are required by law to pay taxes on it. This income is usually a capital gain and it applies whether you’re selling the assets of a company or shares of company stock. (See accompanying post “Advantages & Disadvantages of Stock vs. Asset Sales”)

The tax consequences depend greatly on the deal structure. There are substantially different implications for an asset sale versus a stock sale versus a merger. So you need to know, going into any negotiation process with a prospective buyer, how the dollars in the deal will play out.

At ManageVisors we take a great deal of time and energy to help you understand the tax landscape you’re entering. Still, I can’t stress enough the importance of consulting your accountant or other tax advisor long before your business hits the market. I’ve had many entrepreneurs stop the sale process cold once they fully understood the tax implications.

Jason, a Ventura County property manager, told me back in 2018 “I just can’t afford to sell right now. It wouldn’t be worth it.”


C Corp. vs. S Corp vs. LLC vs Partnership

Any PM company operating as a C Corporation will be taxed two times on the sale. The first tax you’ll have to pay is the corporate tax which coincides with your commercial income tax return. Since corporations are considered separate entities from their owners, the IRS requires each entity to pay their share of taxes from it.

The corporation will pay whatever the current corporate tax rate is on longterm capital gains. Then, each shareholder of the company will be subjected to a capital gains tax on their personal income tax return. They won’t have to pay taxes on the full amount of the capital gains, though. The profits of capital assets get distributed equally among the shareholders of the company. Therefore, the amount that was distributed to each shareholder will get multiplied by the capital gains tax rate. The result is the amount that each shareholder must pay in personal taxes.

S corporations and partnerships have a similar tax structure in the sense that there is no double taxation like you have with C corporations. When you sell assets through an S corporation or partnership, the individual owners or shareholders are each responsible for paying the taxes on their personal income tax returns. The upside is they don’t have to pay another set of taxes on the commercial income tax return of the company.

This makes S corporations perfect for property managers who want to sell shares of their company while still maintaining a single tax rate for the profits. BE WARNED. C corporations are not allowed to change their corporate status to an S corporation, for the purposes of avoiding the double taxation. The IRS loves cracking down on this. The government requires C corporations to change their status many years before the sale of any assets takes place. This is their way of deterring owners from committing tax evasion.

Limited liability companies, LLC’s, are a bit dicier. In California, real estate law prohibits real estate brokerages and property management companies from being owned by an LLC. Current legislation is winding its way through the state Legislature to loosen this restriction but existing law has not changed. However, there are work-arounds to separate the licensed sponsoring broker from the majority owner selling the business.

The IRS usually considers LLC’s and sole proprietorships to be disregarded entities, treated as pass-throughs. This means that these companies won’t get taxed separately and you won’t have to file a commercial income tax return. Instead, any profits made from these capital assets will only have to be paid on the owner’s personal income tax form. Of course, you have the option of making your limited liability company a separate entity if you want to, but most people don’t because the tax benefits are so much better when keeping it as a disregarded entity.


Stock Sale vs Asset Sale

When a small business owner sells stock in their company, they are really selling the entity of the company to the buyer. Remember that selling a stock is like selling a portion of the ownership to your company. The more stock that is purchased, the bigger percentage of the company that your buyer owns. Of course, the buyer will assume the debts and liabilities that are attached to their ownership of the company as well.

That is why most buyers prefer an Asset Sale. They buy the assets of a company without incurring the debts and liabilities of your corporation. It is quite common for a business to be sold in an Asset Sale while the seller’s corporate entity continues on, long after the business has changed hands.

Sellers, on the other hand, generally prefer a Stock Sale because they will get taxed at a much lower rate than they would if they sold their capital assets. Buyers might not always like this idea, so sellers will typically lower their purchase price in order to make the offer more appealing to the buyer.

Anytime the seller makes a profit on the sale of their stock, they must pay a longterm capital gains tax, unless the business is less than a year old, which is rare. The difference is that stocks are usually held for a lot longer than capital assets, which means the seller will get a more generous tax break for selling stock that they’ve held for longer than one year.


Dealing wih Capital Assets

Property management businesses are typically sold with very little in the way of capital assets. The vast majority of a service company’s enterprise value is in goodwill, defined as all value after tangible assets. The common tangible assets in PM transactions include office equipment, software and hardware, furniture, tenant improvements, maintenance equipment and vehicles.

Capital assets are thrown into three categories by the IRS – real property, depreciable property, and inventory property. Some PM owners sell real estate along with their business. The real estate gets taxed as a separate capital asset unless the buyer was purchasing the entire entity of the company in a Stock Sale. If the buyer purchases the entity, it would allow the buyer to just take over all the real estate holdings of the company because those properties are under the company’s name. The only time this wouldn’t apply is if the original owner’s name was on the property. Then, the owner would have to actually sell the property through a real estate transaction to the buyer and pay a capital gain tax on the profit.

Depreciable property is the furniture, computers, vehicles and such whish gets treated as a gain or loss, based on the current value. This value is almost always lower than what the seller originally purchased it for. If you held the depreciable property for longer than one year before you sold it, then your tax rate will be considerably less than if you held the property for under a year. The current value versus the purchase price will be what decides the tax rate in this situation. Depreciation recapture is the term used to describe the amount of profit you made from selling the depreciable property.

Inventory sales is not relevant to property management companies and most service businesses.


One Way To Close a Deal Tax-Free

Property management sellers want to pay as little tax as possible. Is it possible to avoid paying taxes altogether?  Yes and no. If you put cash in your pocket upon the sale of the company, you’re going to get taxed. But there are a few ways to close your deal on a tax-free basis.

One way is with stock exchanges. If a buyer has his own corporation and offers his company stock in exchange for stock in your company, it could qualify. As long as certain IRS provisions are met which pertain to a reorganization, you can conduct a stock exchange like this and not have to pay any taxes at closing.

The IRS states that the seller must receive 50%-100% of the buyer’s stock in order for it to be tax-free. As for asset transfers, you can make these tax-free as well if you receive 100% of the buyer’s stock. The only time you will be taxed is if the buyer gave you actual cash for your stock or assets. Otherwise, you can get away with a tax-free transaction by simply keeping it as an exchange of non-cash assets.


The benefit of seller financing

Business sellers love all-cash offers. Because property management is a highly-desirable category in business sales, all-cash deals are very achievable. But more often than not, buyers are not willing to pony up 100% cash to close the transaction.

Seller financing allows an owner to achieve a higher price by deferring payments from the buyer. The buyer makes monthly payments for 3, 5 or 7 years typically, with an interest rate added onto the monthly premiums. SBA lenders and local banks usually require some amount of seller financing in order to underwrite their loan. A seller carry note is usually the best way to bridge the gap in price expectations between a seller and buyer. It’s also seen as a way for the outgoing owner to still have skin in the game and actively assist the new owner in a successful transition.

Many sellers struggle with incurring this risk. What if the new guy makes a mess of things? Loses many of my clients or employees? If the business goes south and the buyer defaults, there is a chance you could lose your business and the money still owed on the note.

On the favorable side, the nature of PM’s recurring revenues and contracted fees makes this, thankfully, pretty uncommon. In a worst case of a default or BK, the seller can defer all taxes on the monthly payments until they’ve landed. You only pay taxes on the money the buyer has already paid you. Not only that, you get to retain ownership of your company while keeping the money the buyer already paid you.

This outcome can be great as long as the company has not lost a lot of its income potential. These are serious considerations you need to make before you offer seller financing to a buyer. But if you are just selling some of your assets through seller financing while retaining stock ownership of the company, then it may be a less risky transaction for you.


This post intended for informational purposes only. It is not intended to constitute legal, tax or investment advice. There is no guarantee that any claims made are accurate or will come to pass. ManageVisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.

Avoid This Word At All Cost

Avoid This Word At All Cost

Avoid This Word When Seeking Buyers


Property Management Sellers Don’t Realize How Harmful This Word Is

All industries have their own jargon. Their unique set of terms and expressions. In some cases, they tell a story beautifully. In others, they doom the situation.

The process of selling a property management company carries a unique set of pleasures and pitfalls. Investors are attracted to the recurring revenues. The scalability. The profitability. The low barrier to entry. The recession-proof nature of the industry.

Over the years, I’ve come to loathe a word which many PM sellers love to toss about. They presume it will entice potential acquirers to dive deeper into the story of their business.

Unfortunately, it does the opposite. It usually sends them running to the next deal.

So what’s the dastardly word?


In business sales, it’s a death sentence. But most sellers don’t realize it.

The term gets thrown around a lot in commercial real estate circles. Investment opportunities almost always boast of their upside potential. Most commercial investment properties are marketed utilizing a Pro Forma, a sometimes-preposterous assumption of a property’s future profitability. Residential property marketers also like to discuss their subject’s future potential as well.

But in business sales, it’s a different ballgame. A company claiming to have great potential usually gets nowhere on the open market. Why?

Several reasons. Most buyers see it as a red-flag, a back-handed admission of some serious problem. Successful, profitable businesses never talk about their potential. They talk about their successes. Their growth. Their effectiveness.

Troubled or disappointed owners talk about potential. For whatever reason, they haven’t achieved their goals.

Potential is a term that annoys business buyers because it’s often untrue. Or unprovable. Or the chief architect of unreasonable expectations. Sometimes there really isn’t much potential there.

Businesses don’t trade on potential. A buyer may indeed see some unrealized potential down the road through improving efficiencies, better marketing or hiring sales people. But buyers aren’t in the business of rewarding sellers for work they haven’t done.

Business broker Ted Burbank wrote a terrific book nearly a dozen years, “How to Become the Best Business Broker in Town,” that made a lasting impression on me. One excellent point he makes is the distinction between potential and opportunity. The two words sound quite similar but he astutely points out the tremendous differences for business buyers and sellers.

“Owners are unaware of the damage inflicted on their business’s value by emphasizing its potential. It’s a natural and innocent mistake virtually everyone makes.” He compares it to a schoolboy whose teachers and parents constantly talk about Johnny’s potential – and how he’s not achieving it.”

Property management buyers are super smart folks. They make purchases based on verifiable information and historical data. They resist paying sellers for potential profits. After all, why should their hard work down the road go into the seller’s pocket today?

But here’s what they will pay for – opportunity. Burbank writes “It’s perceived differently. Opportunity has already been created by the seller. It’s there. You created the opportunity and are willing to let the newcomer reap the advantages of your hard work. Any reasonable person must be compelled to compensate you for the opportunity you have created. It’s only right.”

Prices based upon opportunity are always superior to those based on potential. The two ideas may sound the same but how it’s communicated and substantiated is very different.

The buyer who sees the most opportunity pays the highest price. That’s where it becomes so important to hire an experienced intermediary who will properly position your company for maximum value. Without a proper guiding hand, it can be trouble. Look at how many businesses sit on the market for months and years without any activity. There are a lot of discouraged sellers with stories to tell.

So stay off the Potential Train. It’s a rough ride to nowhere.


10 Things To Consider BEFORE Signing an LOI

10 Things To Consider BEFORE Signing an LOI

Make Sure You Fully Understand a Letter of Intent


10 Steps to Take Before Signing a Property Management Business LOI

I admit it. I used to hate the Letter of Intent. I know many other business sales professionals who still do.

I spent many years in commercial real estate doing office and retail leasing, institutional investment sales and ground-up development deals. It seemed many investors seemed to enjoy sending LOI’s out by the dozens, hoping to grab the eyeballs of attention-starved sellers and their brokers. It’s common to receive LOI’s from prospective buyers who’ve never seen the property and couldn’t tell you where it is.

These agreements are almost always non-binding, allowing buyers to back out for any reason. It usually obligates the seller to negotiate with the buyer on an exclusive basis going forward, removing the listing from the marketplace. The buyer enters into a due diligence period with the supposed comfort that other prospects won’t make an end run and steal their deal.

Once a business owner signs an LOI, the balance of power shifts dramatically in the buyer’s favor. Once you’re in bed with the buyer, you’ve got to be careful who sleeps where, and when. If not handled properly, with enforceable timeframes and earnest money deposits, buyers are capable of dragging out due diligence for months and manufacturing reasons for better terms and a lower price.

LOI’s work better in business sales than in commercial real estate transactions. They allow business buyers and sellers to warm up to each other without the pressure of a binding contract.

Here are 10 steps every seller should take BEFORE signing an LOI.

  1. Making sure your buyer is “real.” An earnest money deposit is often part of the LOI submission. In smaller deals, the EMD will be refundable. On larger deals, portions or all may be non-refundable. It your buyer balks at submitting a deposit, move on. For individual purchasers, get a personal financial statement, credit report, bank statements, more than just a standard proof of funds.
  2. Negotiate down the due diligence terms. Most acquirers will ask for a period of 60-90 days. You may be able to negotiate this down to 45 days, maybe 30 with financial buyers. Make sure the LOI has clearly stated timeframes and consequences. The buyer should always know you’re not about to let due diligence drag out. Make it clear there are others at the table, though you’re still honoring the “no-shop” clause.
  3. Considering auditing your financials. When numbers don’t make sense, buyers balk. There’s nothing more credible than handing audited statements from a recognized accounting firm to a buyer. Faulty financials are among the leading causes of broken deals.
  4. Make sure you understand ALL deal points. Is this a stock or asset sale? Will funds be held by an attorney or escrow? Will you get 100% of the proceeds at closing? Know how the holdbacks, carveouts or seller carry notes will work. What are the contingencies? Do you pay off any longterm debts or does the buyer? One of the biggest mistakes you can make as a business seller is not understanding every element of the proposed transaction.
  5. Have detailed discussions with your accountant and financial professionals. I can’t stress this enough. Understand what you will walk away with. How much Uncle Sam gets. How to reduce your tax hit. What all closing costs will be. What are the tax implications of your receivables? Many business owners are dissatisfied upon closing because they didn’t walk away with as much as they expected. You need to know how the numbers will play out.
  6. Make sure your supplier and customer contracts have “successor clauses.” Whenever possible, have your contracts include a clause stating the agreement will survive any change of ownership. The presence of this language gives buyers much comfort.
  7. Disclose risks and flags to the buyer. All companies have risk factors. The more you disclose at the outset, the easier it will be to build the necessary trust. Heed to adage – “Problems don’t kill deals. Surprises kill deals.”
  8. Fully understand and negotiate the non-compete agreement. These can get tricky in the property management space, where multiple offices create different geographic bounderies. How does the LOI limit your future business activities? Are you being adequately compensated? Is there an enforcement mechanism? Can your buyer live without one?
  9. Nurture and prepare your references. Acquirers may want to speak to property owners, vendors, employees, attorneys, accountants. Contact a few key “reference-able” folks so they’ll be ready without necessarily indicating the business is for sale. Tell them they’re getting contacted because you’re applying for a business loan.
  10. Understand all aspects of the transition. Make sure your role in the post-sale company is clearly defined. Many of these details will not likely be spelled out in writing so a good deal of conversation may be in order before signing the LOI.

Analyzing competing offers is not always easy. Deals often get hung up on issues having little to do with price. Your chances improve tremendously when you truly understand the elements of the LOI and you have a genuine sense of the buyer’s motivations.


This post intended for informational purposes only. It is not intended to constitute legal, tax or investment advice. There is no guarantee that any claims made are accurate or will come to pass. ManageVisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.

A Look At Past Property Management Deals

A Look At Past Property Management Deals


What Sale Price Did Other PM Businesses Get?

A Look At Past Property Management Deals and Why They Don’t Tell The Whole Story

It’s one of the first questions I typically hear when meeting a property management professional who is giving some thought to selling their business. There is a natural curiosity.

What Do You Think My Business Is Worth?

There are literally dozens of factors that have positive and negative impacts on the value of your company. Valuation specialists utlitize the 3 approaches to value in drawing conclusions – the Asset, Market and Income approaches.

For management companies, the Asset approach is typically discarded. Ours are service-based businesses where the tangible assets rarely match the Market or Income approach values. The discussion here focuses on the Market approach to valuation and what other similar businesses achieved. Sales comps.

Unlike with residential or commercial real estate, sales comps are only employed as very loose frameworks in business valuation. The unique nature of each company makes apples to apples impossible.

We certainly can look at many years of transactions and find key reference points. These reference points are expressed as multiples. It can be a multiple of earnings. A multiple of gross revenue. A multiple of gross profit margin. A multiple of EBIT or EBITDA. A multiple of monthly management contracts.

An analysis of the last decade of property management transactions tells us a few things we likely could’ve assumed already:

  1. High revenue companies will achieve a greater multiple than smaller firms.
  2. Businesses showing a rapid or recent rise in revenues or earnings achieve higher multiples than companies showing flat or declining numbers.
  3. Management companies who’ve taken the time to highly automate their processes achieve higher multiples.
  4. Companies where the owner has little or no role in daily operations get a higher multiple.
  5. Businesses with more than 5 years of operations get higher multiples.
  6. Property management buyers rarely reach a purchase price equal to one year’s annual revenues. A $1 Million revenue company is not likely to get a $1Million purchase price.
  7. Companies with highly developed marketing processes and automations will get higher multiples than ones with lots of manual process.
  8. Businesses with strong balance sheets and little or no longterm debt get a higher multiple.


So what are the price ranges?

We did a review of almost 100 property management companies sold throughout the U.S. in the last decade. These comps include residential, commercial, HOA and vacation rental property management businesses. Real estate offices and brokerages were discarded. There were, by far, more comps reported in Florida than any other state. That’s partly due to the state’s very active vacation rental marketplace. It also points to the fact that Florida brokers, M&A professionals and sales associations are better about reporting transactions than other parts of the country.

Keep in mind, this analysis is limited to property management companies doing between $500,000 and $5 Million in revenues. We only included businesses booking at least half a million dollars in third-party management revenues.

Some median numbers we found in this analysis, for the 90-plus PM companies purchased:
  1. Median Gross Revenues – $797,080
  2. Median Seller’s Discretionary Earnings – $153,056
  3. Median Earnings Before Interest, Taxes, Depreciation & Amortization (EBITDA) – $66,697
  4. Median SDE Margins – 15.4% (SDE as a percentage of gross revenues)
  5. Median Purchase Price – $365,000
So here are some of the multiples which create the reference points in the sales comps.
  1. Median Purchase Price as a percentage of SDE – 2.5 times SDE. The 25th percentile businesses achieved 1.9 times SDE while the 75th percentile sales hit 3.1 times SDE.
  2. Median Purchase Price as a percentage of EBITDA – 5.0 times EBITDA. The 25th percentile businesses achieved 3.0 times EBITDA while the 75th percentile companies hit 11.6 times EBITDA.
  3. Median Purchase Price as a percentage of annual Gross Revenues – 41%. The 25th percentile businesses achieved 32% of revenues while the 75th percentile companies got 49% of revenues. The 90th percentile PM companies reached 73% of revenues.


Again, these numbers don’t tell the whole valuation story. They certainly shouldn’t be used as arbitrary conclusions of your company’s value.

First off, there are marketplace considerations which can drive values up or down. These figures are national. There will be state and regional variations in value. Companies with office locations in rural and small towns will see fewer buyers, and lower prices, than those in major metros.

Timing also plays a role. There was a record number of property management companies sold in 2018. As we work through our post-COVID futures in 2020, the multiples are likely to get  pushed down. The typical timeframe to sell a PM business is between 6-12 months.

With these comps in mind, our business valuation experts will then examine the 8 key drivers of your company value to refine the pricing. Included in those calculations is your personal readiness to sell the business.

So these sales comps are good tools as a starting point in the valuation process. But you’d make a big mistake in presuming these are how much your business is worth.

That’s why we encourage you to sign up for a ManageVisors business valuation. It’s free and takes a much deeper dive into the factors that determine the pricing of your company. We also offer fee-based certified valuations, recommended when making decisions related to stock purchases, estate planning and legal matters.

This post intended for informational purposes only. It is not intended to constitute legal, tax or investment advice. There is no guarantee that any claims made are accurate or will come to pass. ManageVisors does not warrant the accuracy of the information. Consult a financial, tax or legal professional for specific information related to your own situation.