How to Value a Construction Contractor or Subcontractor for M&A Purposes

How to Value a Construction Contractor or Subcontractor for M&A Purposes

How to Value a Construction Contractor or Subcontractor for Merger & Acquisition Purposes

Greg Caruso, Esq., CPA, CVA is a valuation expert who valued many construction contractors, subcontractors, and suppliers.  As a business broker, with a strong construction background, Greg has sold many construction contractors, subcontractors, and suppliers.  Greg spent many years working as a project manager and estimator at a large general contractor and was an owner of a speculative homebuilder that delivered 70 homes in peak years.  He combines this background with his accounting and valuation practices to give an up to date primer on what is different and what to look for when valuing contractors for M&A and other purposes.  Greg has valued and sold construction contractors from general contractors and subcontractors such as HVAC, plumbing, electrical, to material suppliers, and to engineering firms.

Want to know more about building value and selling your construction company – Click here to download our book, What’s Your Number? A Contractor’s Guide to Contingency and Succession Planning. 


 

Clients choose Harvest Business Advisors for our sage advice on profitably growing their business, accurate business valuations, and when the time is right, a consistent ability to deliver a high price as part of a smooth exit transaction.

Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services.  We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

Valuation Multiples – A Key Element to Selling A Construction Company

Valuation Multiples – A Key Element to Selling A Construction Company

Construction companies can be difficult businesses to sell.  A key element to selling your construction company business is pricing it at proper market multiples.  At a very high level, other major considerations for selling construction contractor businesses are:

  • Be profitable.  You are selling profits.
  • Ensure that your financial statements clearly show the profits.  For many companies this will require Reviewed Accrual-based financials along with clear Work In Process Schedules.  If you intend to sell in the next year or two and you don’t do this now, review your situation with a knowledgeable broker.
  • Create defined systems, and have a reasonable level of schedules.  Your buyer needs to understand your business.  He or she is not in the middle of your business like you are and is not in your head.
  • Identify key people who will remain with the business.  If your key people are your age and retiring with you, who will continue the relationships that drive the business?  Who will know the systems?
  • Do not wait until the next recession is on the horizon to start thinking about selling.  Selling a construction company is a nine to 18 month process in good markets.  During recessions, most contractors will not sell for much above work-out prices if they sell at all.

Finally, price the business fairly.  It is hard to resist asking for the moon under the theory that a buyer will negotiate if they are interested and “… just maybe…..we will get lucky.”  This rarely works out.  Buyer prospects inquire on reasonably priced businesses (your buyer’s theory is “if they are serious, they will price it right”) and without prospects you can not sell.  Price your business at the high end of reasonable, and if it truly deserves that pricing remain firm during negotiations.

Below are valuation multiple ranges we have seen for some typical construction contractors.  Please note that these ranges can vary dramatically based on the nature of your contracts, the size of your business, bonding requirements, actual trade, and more.  In all cases we recommend obtaining a business valuation by a valuation company that also brokers and sells companies.  They will look at all the specific variables and come up with a much more accurate price.

 

Type of Construction Company Discretionary Earnings Multiples EBITDA Multiples
General Contractor 1.5 – 3 3 – 5
Remodeler 1.5 – 2.8 3 – 4.5
Window Wall 2 – 3 3.5 – 5
HVAC/Plumbing/Electrical 1.5 – 3.3 3.5 – 5.5
Painting/Drywall/Insulation 1.5 – 2.5 3 – 4
Excavation (often asset based) Varies Varies

 

What is included in the “price”?  Most sales are asset sales.  One of the difficulties in pricing construction contractors is defining what is included in the sale on the balance sheet as part of the price.  Namely, who gets the accounts receivable and, when applicable, is the inventory included in the base price or added to it.  How the “price” is quoted in relation to these two asset classes can cause big swings.  Obviously excavators and other heavy equipment contractors can have pricing swings related to the age and condition of their equipment.

In conclusion, these multiples are a useful starting point but dangerous to use without a full business valuation analysis if you are really going to sell.

We would be pleased to discuss your situation with you in a confidential no-fee initial consultation.  Click on the How May We Help You tab below.

Want to know more about building value and selling your construction company – Click here to download our e-book “What’s Your Number? A Contractor’s Guide to Contingency and Succession Planning.” 

 

(Note – the Author, Greg Caruso, JD, CPA, CVA, has 15 years experience as a project manager for large general contractors and then as an owner/operator of a home building company that delivered up to 70 homes a year. Greg ha been a business broker and Certified Valuation Analyst for more than 18 years.)

Harvest Business Advisors provides business brokerage, business valuations and succession transaction services. Our team has extensive experience and diverse backgrounds in the financial, legal, medical, information technology and contracting fields. Harvest Business Advisors has offices in Maryland, New Jersey and Virginia.  Connect with us at info@harvestbusiness com or  877-838-4966 to discuss selling your business, ordering a business valuation or buying a business..

 

 

How Business Owners Can Increase HVAC Company Value

How Business Owners Can Increase HVAC Company Value

Over the years, the brokers at Harvest Business Advisors have sold multiple HVAC, Mechanical, Plumbing, and Electrical Contractors.

From those sales, we have learned that sales price for HVAC contractor businesses can be increased by:

  1. Focusing on Service Work – Providing HVAC, mechanical, plumbing, or electrical service work.  Doing a good job on service work usually means that sooner or later you will get another call.  Service work businesses tends to be consistently repeating and thus, has more value than a firm that focuses on only new construction.
  2. Offering Service Contracts – guaranteed opportunities to work with the client and possibly up-sell. Simple marketing (stickers on the units) and customer service are essential.
  3. Keep Growing – Like all businesses, you are selling your profits (and the potential of profits for the buyer). Demonstrating strong gross margins and consistent growth count too.
  4. Upgrade Equipment (to a point)  – Find the sweet spot with upgrading equipment. Over investing reduces profit which is the basis of your sale. But if all trucks  300,000 miles on them and other equipment is 15 years old, buyers will notice and the selling price will be reduced.
  5. Hire a Qualified Broker – Running your business is a full-time job. Selling your business is a full-time job. You focus on keeping the profits up and the business humming. We will focus on marketing your business offering, qualifying prospective buyers and creating an “auction” environment for the highest sales price.

The brokers at Harvest Business Advisors would be happy to discuss the process of preparing to sell your business with you. We also encourage you to download our e-book “What’s Your Number? A Contractor’s Guide to Contingency and Succession Planning” which may answer some questions.

 


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia.
Connect with us at info@harvestbusiness.com or 877-838-4966 to discuss selling your business, ordering a business valuation or buying a business.

Selling A Construction Company – Valuation Multiples for M&A

Construction companies can be difficult businesses to sell.  A key element to selling your construction company business is pricing it at proper market multiples.  At a very high level, other major considerations for selling construction contractor businesses are:

  • Be profitable.  You are selling profits.
  • Ensure that your financial statements clearly show the profits.  For many companies this will require Reviewed Accrual-based financials along with clear Work In Process Schedules.  If you intend to sell in the next year or two and you don’t do this now, review your situation with a knowledgeable broker.
  • Create defined systems, and have a reasonable level of schedules.  Your buyer needs to understand your business.  He or she is not in the middle of your business like you are and is not in your head.
  • Identify key people who are staying on.  If your key people are your age and retiring with you, who will continue the relationships that drive the business?  Who will know the systems?
  • Do not wait until the next recession is on the horizon to start thinking about selling.  Selling a construction company is a nine to 18 month process in good markets.  During recessions, most contractors will not sell for much above work-out prices if they sell at all.

Want to know more about building value and selling your construction company – Click here to download a 20+ page e-book. 

Finally, price the business fairly.  It is hard to resist asking for the moon under the theory that a buyer will negotiate if they are interested and “… just maybe…..we will get lucky.”  This rarely works out.  Buyer prospects inquire on reasonably priced businesses (your buyer’s theory is “if they are serious, they will price it right”) and without prospects you can not sell.  Price your business at the high end of reasonable, and if it truly deserves that pricing remain firm during negotiations.

Below are valuation multiple ranges we have seen for some typical construction contractors.  Please note that these ranges can vary dramatically based on the nature of your contracts, the size of your business, bonding requirements, actual trade, and more.  In all cases we recommend obtaining a business valuation by a valuation company that also brokers and sells companies.  They will look at all the specific variables and come up with a much more accurate price.

Want to know more about building value and selling your construction company – Click here to download a 20+ page e-book. 

 

Type of Construction Company Discretionary Earnings Multiples EBITDA Multiples
General Contractor 1.5 – 3 3 – 5
Remodeler 1.5 – 2.8 3 – 4.5
Window Wall 2 – 3 3.5 – 5
HVAC/Plumbing/Electrical 1.5 – 3.3 3.5 – 5.5
Painting/Drywall/Insulation 1.5 – 2.5 3 – 4
Excavation (often asset based) Varies Varies

 

What is included in the “price”?  Most sales are asset sales.  One of the difficulties in pricing construction contractors is defining what is included in the sale on the balance sheet as part of the price.  Namely, who gets the accounts receivable and, when applicable, is the inventory included in the base price or added to it.  How the “price” is quoted in relation to these two asset classes can cause big swings.  Obviously excavators and other heavy equipment contractors can have pricing swings related to the age and condition of their equipment.

In conclusion, these multiples are a useful starting point but dangerous to use without a full business valuation analysis if you are really going to sell.

We would be pleased to discuss your situation with you in a confidential no-fee initial consultation.  Click on the How May We Help You tab below.

Want to know more about building value and selling your construction company – Click here to download a 20+ page e-book. 

(Note – the Author, Greg Caruso, JD, CPA, CVA, has 15 years experience as a project manager for large general contractors and then as an owner/operator of a home building company that delivered up to 70 homes a year prior to going into business valuation and business brokerage (which he has done for another 18 + years now).

 


Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver a high price as part of a smooth exit transaction.
Harvest Business Advisors provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia.
Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

Your HVAC Company Business Plan – A Business Brokers Guide to Building Business Value

HVAC, mechanical contractors, and plumbing contractors  including mechanical contractors live in a topsy-turvey world of competitive bids with jobs often starting with little notice.  This causes many HVAC contractors to question business planning at all.  You should prepare a business plan for the following reasons:

  • It gives you an opportunity to look at all key people and productivity including profitability by job, by supervisor, by property manager or general contractor etc.
  • It allows you to determine strategy in advance for if things are working well or not working at all.
  • It gives you a guide to lead from.  It also allows you to include your team in the planning process increasing buy-in.

KISS is the key.  Keep It Super Simple.  Here is how most HVAC business owners can plan for the future:

  • Create an introduction page that specifies in writing your Mission (what you do now) and your Vision (what you want to be in the future).  Put your past three years key metrics – Revenues, Gross Margins, Overhead, Profits.  Perhaps your fully marked up labor rates etc.  Your shorthand for running your business.
  • On a second page list specific tasks that will be completed in the next 90 days.  List who will be responsible and the due date.  IMPORTANT – you must review this list at least monthly with your team.  Weekly is usually better.  Keep updating and adding new 90 day items as ones are complete.
  • Add a Work-In-Process schedule for current and future expected jobs.  Add an overhead expense schedule and equipment purchase schedule.  Have your financial person create a cash flow schedule.  Project your most likely outcome.  If you get really motivated project a low and a high.
  • If possible and helpful review your WIP schedule by profitability by supervisor, tasks, etc.  See where you make the best money.  Can you do more of that work?
  • Review the entire plan monthly.  Review the tasks weekly.  Update the projections quarterly or sooner if major changes occur.  USE this document.  You will be amazed by what you see in front of you that used to only be seen once it occured.

This is not a huge document to “selling” the bank or bonding company on you.  This is a practical document you can use to stay focused on grow your business.

For more tips click here to download the e-book, “A Contractor’s Guide to Succession Planning”.   A salable business is a well run business.  See if you are running your business well. 

Harvest Business Advisors sells and prepares business valuations of HVAC, mechanical, and plumbing contractors and more nationally from our offices in Virginia, New Jersey, and Maryland.

Harvest’s Business Brokerage of Construction Companies – Business Sales MD, DC, VA

Harvest’s Business Brokerage of Construction Companies – Business Sales MD, DC, VA

Harvest Business Advisors is quite active in the Construction Contractor and Construction Subcontractor Business Brokerage Space.  We have sold and valued all types of new construction and service type construction businesses.  Construction businesses sold include HVAC, electrical, fireplace contractors, water and fire Remediation Companies, concrete companies, home siding and roofing businesses, paving, masonry, insulation and more.  The list of types of contractors we have consulted and valued includes all of above plus fire protection, drywall, plumbing, excavators, flooring and carpet, painting, and more.

Want to know more about building value and selling your construction company – Click here to download a 20+ page e-book. 

We use our Harvest Business Brokerage Seven Step Business Sales System to make sure you obtain the best terms, lower taxes, and the highest price for your construction company.

With the recent market upturn and quality earnings by construction company owners – if you are nearing retirement – it is time to look at your market value and give serious consideration to moving forward.  Contact one of us at Harvest for a no-cost, confidential conversation about your situation and your business value.

Clients choose Harvest Business Advisors for our accurate business valuations and our consistent ability to deliver the highest price in the smoothest sale transaction possible. Harvest provides business brokerage, business valuation, and business succession planning services. We have extensive experience in the information technology and professional services, manufacturing, distribution, and contracting fields. We maintain offices in Maryland, New Jersey and Virginia. Connect with us at info@harvestbusiness.com or 443.334.8000 to discuss selling your business, ordering a business valuation or buying a business.

 

 

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