Selling a contract cleaning business
Labour is three quarters of the cost base, so what your contracts say about wage increases decides the price. Plus where the premium sits and what to fix first.
Contract cleaning is a low margin, labour intensive business with low barriers to entry, and it is valued accordingly. What separates the businesses that sell well from the ones that struggle is almost entirely about which customers they clean for and whether their contracts protect the margin.
General office cleaning on rolling terms with no indexation is a difficult sale. Regulated environment work on three year contracts with a wage pass through clause is a very different proposition.
Where the margin actually goes
Illustrative cost base for a contract cleaning business. Labour is almost everything.
The wage problem, and why contracts decide everything
Labour is roughly three quarters of the cost base. Statutory minimum wage rises arrive annually and apply immediately, while your ability to recover them depends entirely on what your contracts say.
A buyer will go through the portfolio looking for one thing above all others: does each contract contain a mechanism to pass through statutory wage increases, and has it actually been used? A clause that exists but has never been invoked because you did not want to upset the client is worth very little.
This is the single largest determinant of value in the sector, and it is more important than turnover, growth or customer names.
How many of your contracts let you pass through wage increases? And how many times have you actually done it? That answer sets your price.
Get a free valuationWhat it is worth
| Turnover | Typical adjusted EBITDA | Indicative enterprise value | Who is likely to buy |
|---|---|---|---|
| £10m | £0.5m to £0.8m | £1.5m to £3.2m | Regional provider, management buyout |
| £25m | £1.3m to £2.0m | £4.5m to £10m | FM group, first platform bolt on |
| £50m | £2.5m to £4.0m | £10m to £24m | Private equity platform, national services group |
| £150m | £7.5m to £12m | £34m to £78m | International FM groups, services funds |
Guide only. The spread inside any one row is wider than the spread between rows.
What changes as you scale
Indicative. Turnover is a proxy, the size of the earnings is what moves the multiple.
Where the premium is
Regulated and specialist environments. Healthcare, food production, pharmaceutical, laboratory, rail and aviation. Audited standards, trained and vetted staff, real barriers to entry and clients who cannot switch to the cheapest quote. These businesses price a full turn or more above general commercial cleaning.
Geographic density. Contracts clustered tightly enough to share supervision and cover absence. Density is what makes the margin work, and a national footprint of scattered sites is worth less than a dense regional one of the same value.
Contract length and indexation. Covered above, and it is the thing to fix first.
Low staff turnover. In a sector where turnover routinely exceeds fifty per cent, a business that retains people has lower recruitment cost, better quality scores and fewer contract losses.
What drags the number down
1. Contracts with no wage mechanism
Already covered, and it is worth repeating because it is that important.
2. TUPE liabilities that arrived with contracts
Every contract win brings people on their existing terms. Over years that produces a workforce on inconsistent contracts, with inherited enhancements and accrued holiday that has never been properly quantified. A buyer will quantify it and deduct it.
3. Churn
Cleaning contracts are lost on price more than on quality. A business losing fifteen per cent of its portfolio a year is replacing revenue rather than growing, and a buyer models that forward.
4. Rolling monthly terms
Common in this sector and heavily discounted. A portfolio that can be terminated on a month’s notice is not contracted income in any meaningful sense.
5. Under supervision
Quality failures cost contracts. A business running thin on supervision may show a better margin today and lose the contracts that produced it.
6. Compliance exposure on labour
Right to work checks, holiday pay calculations, and correct treatment of travel time between sites. This sector attracts scrutiny, and buyers look hard at it.
Most of the portfolio on rolling terms? Fixing that at renewal is slow but it is the single biggest lever on what the business is worth.
Get a free valuationWho is buying
Facilities management groups adding soft services to bundle with engineering, because total FM contracts are stickier than single service ones.
Private equity platforms consolidating regional providers into a national footprint, where density and buying power create the margin.
National and international services groups buying regional coverage or a sector specialism.
Specialist operators buying capability in regulated environments they cannot quickly build.
What to fix, and how long it takes
- Audit every contract for a wage pass through mechanism. Weeks, and it tells you what you are actually selling
- Invoke the mechanisms you already have. One cycle, and it proves to a buyer they are real
- Move rolling contracts onto fixed terms at renewal. Two to three years, and it is the biggest lever available
- Quantify the TUPE position across the workforce. Weeks
- Grow the specialist and regulated share of the portfolio. Two to three years, and it lifts the band rather than the position within it
- Reduce staff turnover. Twelve months, and it improves quality scores and retention together
The process
- Valuation and portfolio analysis, contract by contract, with term, margin, indexation and renewal history.
- A market test through our 30 day market test.
- Approaching buyers, on and off market.
- Offers and heads of terms.
- Diligence. Contract terms and indexation, TUPE population, holiday pay and labour compliance, churn history and margin by contract.
- Completion and handover.
Where to start
With the contract audit, because it determines the price more than anything else. Our adjusted EBITDA calculator gets the earnings right, and adjacent ranges are on the multiples by sector page.
Answered.
What multiple do contract cleaning businesses sell for?
Indicatively three and a half to six times adjusted EBITDA depending on size, with general office cleaning at the bottom and regulated or specialist environment work a full turn or more above. Contract length and whether wage increases can be passed through matter more than turnover.
Why do wage pass through clauses matter so much?
Because labour is roughly three quarters of the cost base and statutory increases arrive annually. On a seven per cent operating margin, a five per cent wage rise you cannot recover removes around half the profit. A buyer models that forward across the whole portfolio.
Are rolling monthly contracts a problem?
Yes, and a substantial one. A portfolio terminable on a month’s notice is not contracted income in any meaningful sense, and buyers discount it heavily. Moving contracts onto fixed terms at renewal is slow but it is the biggest single lever on value.
What makes specialist cleaning worth more?
Audited standards, vetted and trained staff, and clients who cannot simply move to the cheapest quote. Healthcare, food production, pharmaceutical, laboratory, rail and aviation all have real barriers to entry, which shows in both margin and multiple.
Find out what it is worth
A free valuation with a proper contract audit behind it: term, indexation, margin and churn. Costs nothing and commits you to nothing.
Get a free valuation