Case Studies › Water Treatment Services
Case StudyPrivate Equity Due DiligenceWater Treatment ServicesIndependent · No Chemistry Sold

The financials said “buy.” The service routes said “reprice.”

A private equity firm was evaluating a water treatment service company with $9M in revenue, 400 accounts, and 25 field staff. The quality of earnings report looked clean. Industrial Water Advisory was asked to look past it, at the accounts, the routes, the contracts, and the people. What we found changed the price, the deal terms, and the first year after close.

Target
$9M revenue, 400 accounts
Asking Price
$8.91M (9x EBIT)
Multiple
9x → 7x EBIT
Price
−$1.98M
Total Value
~$6.2M in year one
Challenge — What the Buyer Needed to Know

On paper, the business looked healthy: 62% gross margin and $0.99M in EBIT. The asking price was $8.91M, or 9x EBIT.

The firm’s question was simple: is this revenue durable, and can the team grow it?

A quality of earnings report confirms that revenue was billed. It can’t tell you whether the treatment program behind it is working, whether the customer is about to leave, or whether a handful of people are holding the largest accounts together.

Intervention — What We Did
  • Account-level review of the top 25 accounts: 15 site visits, contract reviews, and 8 customer interviews
  • Revenue durability scoring for each account: contract status, performance evidence, relationship depth, and competitive exposure
  • Segment economics: commercial vs. industrial revenue per head, drive time, and EBIT per head
  • Team assessment of all 25 field staff and the leadership that would remain after close
  • A 90-day plan for after close, including a detailed sales and operations plan (S&OP)
What We Found
Revenue Quality
  • Price increases of ~7% a year were hiding account losses of ~9% a year
  • 67% of revenue was “ship and bill,” with no long-term contract
  • The top 10 accounts were 35% of revenue, serviced by just 5 people
  • At 20 accounts, service reports didn’t match how the systems were actually performing
Economics & People
  • Commercial accounts targeted a 65% margin, but technicians spent 42% of their time driving
  • Split by segment, industrial accounts earned ~2.6x the EBIT per head of commercial accounts
  • 5 of the 8 technical people planned to retire within 12–18 months
  • Those same people carried most of the knowledge behind the key accounts
The Real Risk
Key Finding

Stable revenue, shrinking business. Price was doing the work that retention should have been doing. With two-thirds of revenue uncontracted, the top accounts concentrated in a few people, and most of the technical bench about to retire, the revenue was far less durable than the P&L suggested.

None of it showed up in the financials. All of it would have shown up after close, as lost accounts, lost people, and reports a customer eventually stops believing.

Value Delivered
~$6.2M
Total value in the first year: $1.98M off the purchase price, plus $0.61M a year of new EBIT worth ~$4.26M at the 7x entry multiple.
Lower Price
$1.98M
Accounts Kept / Yr
~24 (~$540K)
Revenue
$9.0M → ~$10.0M
EBIT
$0.99M → ~$1.60M
At the Deal
  • Repriced — multiple moved from 9x to 7x EBIT, $1.98M off the price
  • Protected — $1.5M moved into an earnout tied to keeping the top 10 accounts for 18 months
  • Retained — 5 technical people signed retention agreements for at least 2 years
  • Planned — a 90-day plan with a detailed S&OP, ready at close
First Year After Close
  • 60% of accounts moved to contracts within 6 months, even where billing stayed ship-and-bill
  • Attrition reduced from ~9% to under 3%: about 24 more accounts and ~$540K of revenue kept every year
  • 11% revenue growth, from $9.0M to about $10.0M
  • EBIT margin up 5 points, from 11% to 16%: about +$0.61M a year
How the ~$6.2M Adds Up
Lower purchase price (9x → 7x on $0.99M EBIT)$1.98M
New EBIT: $9.99M at 16% (~$1.60M) vs. $9.0M at 11% ($0.99M)+$0.61M / yr
Value of that EBIT at the 7x entry multiple~$4.26M
Total value in year one~$6.24M

Included in the growth, not added again: attrition from ~9% to under 3% keeps about 24 of 400 accounts a year, ~$540K of revenue at the $22.5K average account (~$335K of gross profit at 62%). Not counted: the $1.5M earnout that kept top-account risk with the seller, 2-year retention of 5 technical people, and about 240 accounts (~$5.4M of revenue at the average account size) moved to contracts.

Price basis: $0.99M EBIT at 9x = $8.91M asking price; at 7x = $6.93M. Account values use the $22.5K average ($9M / 400 accounts). Details generalized to protect client confidentiality.

What It Means for You
If You’re Buying
  • Ask for attrition and price increases separately, by year. Growth from price alone has a shelf life.
  • Get revenue per head and drive time by segment. A high margin can hide a low EBIT.
  • Find the people the top accounts depend on, and when they plan to retire, before you close.
  • Read the service reports against the data. If they don’t match, the customer will eventually notice.
If You’re Selling

Everything above will be found. Fix it, or price it in, before a buyer does. Contracts, succession plans, and honest reporting are worth more at the closing table than another price increase.

A water treatment business is its accounts, its routes, and its people. The P&L tells you what they produced last year. Industrial Water Advisory tells you whether they’ll still be there next year, and what to do in the first 90 days to keep them.

Free PDF Download

Get the full case study

Findings, deal impact, and first-year results — one page.

Download PDF

Evaluating a water treatment acquisition?

Independent technical and commercial due diligence on water treatment service companies, chemical distributors, and treatment programs, for buyers, lenders, and sellers preparing for a process. After close, we support the 90-day plan. No chemistry sold, no equipment sold.

Request a Consultation More Case Studies