Selling a Construction Industry Company in 2021

Jul 13, 2021

In the spring of 2020 when segments of the American economy were temporarily shut down or asked to run at reduced capacity due to the COVID-19 pandemic the analytical metrics for assessing the health of the economy were among the strongest in American history with record low unemployment across the demographic spectrum, high levels of business and consumer confidence, and low interest rates to support home purchases, capital infrastructure investment, and business expansion.  In short, America was firing on all cylinders economically. The 100 year public health event, similar to the Spanish flu pandemic a century ago, forced federal, state, and municipal governments to put the economic engine in idle.  Luckily, as scientific knowledge and medical infrastructure increased, segments of the economy were allowed to resume activity and progress back to normal levels of operational productivity occurred.  One of the first segments of the economy to be given increased freedom was the construction industry.  In 2020, the construction industry comprised approximately 4.3% of Gross Domestic Product (GDP).  In 2021 through five months, activity has increased to approximately 4.6% of the GDP or just under $600 billion in construction spending, a roughly 7.5% increase over the same five month period a year ago.

IBA, as a market leading mergers & acquisitions intermediary firm serving the building industry and its allied trades, witnessed firsthand the return of dollars to the construction ecosystem with the resulting investment in capital infrastructure, employees, and strong profitability for mature, well run business models.  We also have seen strong buyer activity in the space through the facilitation of negotiations and transactions in the first two quarters of 2021.  Year-to-date, IBA has completed just under $20 million of transactions involving companies that sell products and provide construction related services to the public sector, businesses, and homeowners. The transactions have involved companies that built out information technology infrastructure for voice, data, and video; provided workstations and office furniture; and cleaned windows.  Current transactions in escrow pending sale include a kitchen & bathroom remodeler, a company that builds patio & deck extensions to residences, and an electrical contractor serving a niche marketplace.  New opportunities recently brought to market include a roofing company that should approach $20 million in revenue in 2021, a business that provides engineering services in the natural resource industry, a union plumbing contractor, and a company that fabricates and installs architectural steel components.  If you are interested in selling or buying a construction industry company in 2021, the members of our transaction team focused on this industry segment would welcome the opportunity to provide an overview of our services.

The following is an overview of the skills & services offered by IBA to its clients selling construction industry businesses.  We welcome the opportunity to be comparison shopped by entrepreneurs seeking professional representation in the sale of their companies.  We are confident that under assessment our relevant knowledge, experience, and high professional skill set will be evident.

Business Valuation – The first step in the sale of a construction industry company is to determine the price it should be offered to potential buyers.  Business valuation is a sophisticated, subjective science that requires an understanding of the accounting models commonly employed by construction industry companies; the valuation models currently being employed in the marketplace by business buyers; the market environment for similar companies in the relevant industry niche & geographic area; and the financing conditions that exist to support acquisitions in the construction industry sector.   All four of these factors are critical components to properly valuing a business for sale.  Business owners are cautioned against having a party value or represent a business for sale that is not active in the business brokerage marketplace for construction industry businesses, as lack of knowledge of recently completed transactions, the market conditions created by buyer demand, and acquisition financing availability can result in a business being improperly valued.   An improperly valued business traditionally sells at a lower price with a longer time period of exposure on the market.  Neither of these outcomes are good for an entrepreneur desiring to sell or the company being sold.

Business owners should also be wary of firms that either outsource their business valuations or take businesses to market without an established value.   The best business brokerage firms have the knowledge, experience, and ability to value businesses “in house”.  A business value needs to be justified & persuasively sold by a business broker to the buyer, their CPA or CFO, their attorney, and bank and/or investors to successfully complete a transaction.   A business broker that does not understand the sophisticated intricacies of how & why a specific value was assigned to a specific business will be at a disadvantage when selling the construction industry company and fail to close potential buyers.

IBA offers complimentary professional opinions of market values of businesses to potential clients.  100% of IBA’s fees are paid on performance upon completion of the sale.  This business model encourages an honest assessment of value and makes the business broker accountable for delivering their price in the marketplace.  Most businesses sold by IBA sell within 10% of the price we go to market and the final sale price is often in alignment with our precision assessment of value that is a component of our business evaluation.  IBA sold construction industry companies in 2021 for six, seven, & eight figures for clients.  Members of our construction industry transaction team welcome the opportunity to represent clients interested in selling for $500,000, $5,000,000, or $15,000,000.

Professional Sales – The successful sale of any product or service requires a presentation that persuasively articulates the attributes & benefits of the item to a potential buyer.  Professional representation of a construction company requires an individual that can convey the unique attributes of the business, financial history, market niche, and future opportunities presented for the company.  If this cannot be accomplished, the company will not sell or will sell at a value reflective of the amount of information conveyed.  It is recommended prior to selecting representation that business owners have the party convey to them an overview of their business model and competitive advantages of their business to assess the level of knowledge and sales skills of the individual.    It is also important to select a broker that has successfully completed transactions involving construction industry businesses and has ongoing engagement with the different demographic groups of buyers interested in acquiring companies in this sector.   A few of the demographic groups currently acquiring companies in the construction industry sector include companies increasing market share in an existing niche; companies bringing manufactured components in house to control production schedules and supply; private equity firms,  non-profit corporations; and individuals with relevant experience desiring entrepreneurial investment opportunities for direct management.  IBA interacts on a regular basis with all of these buyer demographic groups and maintains a database of buyers actively seeking acquisitions in the construction industry sector in the Pacific Northwest.  Many of the buyers in IBA’s buyer database are only actively engaged in the mergers & acquisitions marketplace in the Pacific Northwest with IBA based on IBA’s reputation for confidentiality, integrity, and “best practices” in facilitating the sale of a privately held companies.

Experience –   The probability of achieving the successful sale of a business is enhanced with the engagement of experienced representation to value, market, sell, negotiate, and facilitate the transaction process.  There is no substitution for knowledge & experience.   Business brokerage is a business best learned through action and repetition.  No business owner wants to be the “trial client” for a business broker to gain the experience necessary to be successful in one of the most sophisticated sales professions in the business world.   All business owners want to employ a firm that has the ability for their broker to reference prior personally facilitated transactions, similar negotiations, professional colleagues that have facilitated similar transactions, and relevant conversations with prior client attorneys & accountants during the sale process.

Resources – Navigating the Green River Gorge in a kayak, requires experience, knowledge, a professional skill set, and proper provisions for the journey.  The sale of a business also requires the appropriate resources to complete the transaction. Business sale resources are commonly cerebral in nature.  They include a business attorney cognizant of the “best practice” legal verbiage components employed in a mergers & acquisitions transaction involving a construction industry company; a CPA with the ability to mitigate the tax implications of the transaction for their client, facilitate due diligence efficiently & effectively, and having prior experience valuing components like work in process; and bankers at lending institutions actively engaged in acquisition financing in the construction industry sector.   Frequently IBA’s clients bring skilled attorneys & accountants to transactions.   Equally common are situations where IBA M&A intermediaries are asked for recommendations of legal & accounting professionals with relevant experience related to the purchase & sale of construction industry companies.  We are happy to provide referrals of professionals who have performed at superior levels for their clients in previous IBA facilitated transactions.  IBA is also commonly asked to refer bankers experienced with financing construction industry company acquisitions to buyers.  We view this as part of our seller representation role, as a transaction cannot close without sufficient capital.  Knowing how & where to access acquisition capital is a valuable resource to completing mergers & acquisition transactions.

The sale of a construction industry company can be compared to a game of chess.  Anyone can sit down at a chessboard and play a game.  However, victory at chess is rarely luck.  The same is true for selling a business.  Anyone can attempt to sell a business.  However, only the most experienced, knowledgeable business brokers with the highest professional skill set can consistently deliver premium prices for their clients in a transaction facilitated employing “best practices” while maintaining an environment of confidentiality throughout the sale process.  IBA has successfully facilitated over 4200 transactions since 1975 for our clients in the Pacific Northwest.  Many of those transactions involved construction industry companies.  If you are interested in selling a construction industry business, we would welcome the opportunity to convey IBA’s sales strategy for achieving the best possible outcomes for our clients in a timely manner. The members of IBA’s construction industry transaction team welcome the opportunity to meet or talk on the telephone with construction industry and allied trade entrepreneurs.  IBA is an actively engaged allied member of the Master Builders Association and values its role as a resource to that community.  Please call the relevant office at (425) 454-3052 – Western Washington, (509) 907-9406 – Eastern Washington, (503) 739-4880 – Oregon or email, if we can be of assistance.

IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, and mergers & acquisitions community on subjects relevant to the purchase & sale of privately held companies and family owned businesses.  IBA is recognized as one of the best business brokerage firms in the nation based on its long track record of successfully negotiating “win-win” business sale transactions in environments of full disclosure employing “best practices”.