Janitorial Company with Government Contracts
This transaction involves the acquisition of a regional commercial janitorial services company headquartered in the Mid-Atlantic region. Founded over 20 years ago, the business developed a niche in government facility cleaning, public school maintenance, and municipal building contracts. With 58 full-time employees and 23 part-time workers, the company generated $3.9 million in revenue and $640,000 in adjusted EBITDA. The transaction was structured as an SBA 7(a) financed asset purchase with a unique seller-financing component contingent on the successful assignment of key government contracts. The structure also included employment agreements for operational continuity and a transition plan supported by regulatory approval cycles common in public sector contracting.
The seller, a second-generation owner, had built a strong reputation among local and state procurement offices by emphasizing reliability, low staff turnover, and rapid compliance with government-mandated service-level agreements (SLAs). Over 70% of revenue came from publicly bid contracts awarded on 1–3 year terms, often with renewal options. These included school systems, transit authorities, and state administrative offices. The remaining 30% came from private sector accounts mostly medical offices, law firms, and regional industrial facilities. The client base included 47 active accounts, 17 of which were under multi-year contracts at the time of sale.
Operations Overview
The buyer, a former operations executive at a national facilities management firm, was seeking to acquire a regional services business with embedded contracts and non-cyclical demand. After identifying the business through a local broker, the buyer conducted extensive diligence on personnel practices, contract assignment clauses, insurance coverage, and SLA performance. Because many of the contracts required assignment approval from a city or state-level contracting officer, the deal was structured with an assignment-contingent seller note, designed to protect the buyer against potential contract attrition during the transition period.
The purchase price was $2.55 million, reflecting a 3.98x EBITDA multiple. The deal was structured with $1.785 million in SBA 7(a) senior financing, $382,500 in buyer equity injection, and $382,500 in seller financing. However, the seller note was not payable until and unless 80% of government contract revenue (as measured by trailing 12-month performance) was successfully reassigned to the buyer within 120 days post-close. The seller note included a sliding scale: if only 70–79% of contracts transferred, the note balance would be reduced by 25%; if less than 70% transferred, the note would be extinguished in full. This gave the buyer assurance that the valuation reflected actual cash flow continuity.
Because many government contracts contain “non-assignability” clauses, the seller had proactively prepared novation packages for each agency, complete with financial statements, insurance certificates, W-9s, staffing lists, and transition letters. In total, 19 public agency approvals were required, with a coordinated handoff occurring over the 60-day post-closing period. The seller remained involved during this transition as a consultant, working with contracting officers and procurement managers to reassure them of operational continuity. Only one small municipality elected not to transfer its $45,000 annual contract, which was reallocated to a nearby school district account already serviced by the company.
The company operated from a leased 6,200 square foot warehouse and office combination, located centrally to all service territories. The lease had two years remaining at $4,900/month gross, with a renewal option. Equipment included 15 commercial floor scrubbers, 24 backpack vacuums, 8 cargo vans, and a supply inventory management system. The company leased some of its vehicles but owned most of the equipment outright. The FF&E was included in the sale, and the buyer conducted a full inspection prior to closing, confirming useful life and maintenance status.
Labor was a central component of the operation. The company used a W-2 workforce for all staff and paid prevailing wage on government contracts, as required. A comprehensive onboarding and training program existed, including OSHA compliance, background checks, ID badge issuance, and site-specific task checklists. The workforce was divided into 9 full-time site supervisors, 5 mobile floaters, and roughly 60 cleaning staff split between day and evening shifts. The business had minimal turnover due to its full-time hours, benefits package, and fixed schedules a rarity in janitorial services.
Insurance and bonding were up to date and included a $5 million general liability umbrella, workers compensation, janitorial surety bonds, and auto coverage. The company also maintained a Department of Labor compliance file, which was reviewed and updated quarterly to ensure adherence to Davis-Bacon Act provisions where applicable. The buyer retained the existing HR manager and safety officer under new employment agreements and added a regional director of operations to oversee growth and compliance post-close.
Financial Overview
Financials showed consistent year-over-year growth, with an 8.2% CAGR over the previous five years. Gross margin hovered around 41%, with operating margins at 16–17% due to low overhead and efficient site scheduling. The company used CleanTelligent software for scheduling, inspections, and customer feedback. Reports were auto-generated weekly and shared with contract administrators, satisfying SLA performance requirements and minimizing client complaints. Customer satisfaction scores exceeded 90% in the most recent contract review cycle, and the business had won three new public RFPs in the last 12 months.
Growth opportunities were clear: the buyer planned to pursue additional school district contracts and expand into adjacent counties where smaller operators lacked bonding capacity or staff depth. The company also had excess warehouse space, allowing for expansion of its supplies resale division, which currently provided limited janitorial products to select clients but had the potential to serve as a standalone profit center. The buyer also intended to create a dedicated proposal writing and bid submission team to compete more aggressively on state and federal contracts, as the business had previously relied solely on relationships and re-bid extensions.
Within the first six months post-close, the buyer added three new government accounts totaling $480,000 in annual revenue and began cross-training staff to float between sites, reducing overtime costs and improving scheduling flexibility. The seller remained active during this phase, attending monthly staff meetings and reviewing performance metrics with the buyer. EBITDA improved to $720,000 on an annualized basis due to better labor allocation and procurement discounts obtained by leveraging the buyer’s previous supplier relationships.
From a compliance standpoint, the buyer underwent a full audit by one of the state’s procurement offices during the transition and passed without deficiency. The company’s electronic timekeeping system, vehicle logs, incident reporting system, and training manuals were all found to be current and properly administered. The audit affirmed the company’s vendor status and facilitated smoother onboarding of new RFP awards later in the year.
The real advantage of the deal was the embedded labor infrastructure, reputation with contracting officers, and tight service routes. Whereas many janitorial firms struggle with site scatter and supervisory cost, this business had developed service density within five core urban zones, allowing each site manager to oversee multiple contracts efficiently. The company used standardized cleaning kits, route logs, and uniform protocols, making it easy to scale or onboard new staff with minimal ramp-up.
The SBA loan used for the acquisition was amortized over 10 years at 10% interest, with the seller note in second position. Given the structure of the seller note, the buyer minimized risk of overpayment if contracts failed to transfer. Once all assignments were confirmed, the seller note payments commenced and remained subordinate through month 60. The buyer also negotiated a right of set-off in the event of post-close contract loss due to prior performance issues, though this was never exercised.
The key lesson from this transaction is that government-contracted service businesses require special care in structuring post-close deliverables. Without firm assurances of assignability, a buyer can face immediate revenue degradation. However, by using escrow mechanics, performance-based seller notes, and defined claw back provisions, risk can be contained while providing the seller fair compensation for retained value.
The acquisition has since been used as a case study by the lender involved, who noted that the assignment-contingent note and full documentation packet prepared by the seller helped fast-track underwriting. The lender now offers a term sheet variant based on this structure for other public-sector service businesses undergoing ownership transition.
Conclusion
This janitorial acquisition demonstrated that operational depth, regulatory readiness, and contract assignability can make or break a service business transaction. With careful diligence, SBA financing, and innovative seller alignment strategies, even heavily regulated, public-facing industries can be acquired smoothly and profitably provided the structure reflects real-world transition friction and ensures continuity is compensated, not merely assumed.
