IBA, as the premier business brokerage firm in the Pacific Northwest, is firmly established as a respected professional service firm in the legal, accounting, banking, mergers & acquisitions, real estate, and financial planning communities. Periodically, we will post guest blogs from professionals with knowledge to share for the good of owners of privately held companies & family-owned businesses. The following blog article has been provided by Joseph Hollcraft. Mr. Hollcraft is a business broker at IBA (www.ibainc.com):
Selling an Oregon Construction Industry Company
In my time at IBA I’ve seen many business sales. Whether it’s my personal experience in hospitality, construction, or a more ancillary vertical like print-screening, or listening to my colleagues relate their experiences at IBA’s educational symposiums, the volume of knowledge I and every broker at IBA has acquired over time is substantial. In such a collegial atmosphere it’s impossible not to learn and grow. I’m going to take a moment and relay some of my knowledge and insight, learned through personal experience or by sitting at a table with highly sophisticated M&A specialists, at selling construction industry businesses in an effort to illuminate the path you may be about to walk.
First Things First
The most important thing to know up front is what the marketplace for construction industry businesses looks like. The expenses of a plumber, or electrician, or general contractor are on the rise and have been since the pandemic swept across our communities. Businesses are encountering higher material costs, higher labor costs, and increased demand for trades-based services. These higher costs can be reliably passed on to customers. The increased demand allows businesses to charge an additional premium. These factors make construction industry businesses extremely attractive investment opportunities. What this means to a construction industry business owner is a high demand and likely competitive environment when they take their business to the open market.
Large-scale construction firms and investor teams are betting heavy in creating MEP (Mechanical-Electrical-Plumbing) Services organizations where they can offer bundled services across multiple trades at a discounted rate to customers while capturing multiple aspects of a job. If a General Contractor can work with only one sub-contractor instead of 5, 6, or more to cover all aspects of a job, and get a discount at the same time, they give this opportunity serious consideration. The MEP Services market is growing at a rate above 14% year over year and the market is expected to nearly double in size by 2029. But it isn’t only Mechanical, Electrical, and Plumbing verticals that can expect to command a premium in the marketplace. Complimentary verticals like drywalling, foundation work, and HVAC are also in high demand. Bottom line, if you’re a business owner in this space, now is a great time to sell.
Pre-Sale Considerations
Do you have a fleet? Do you replace it every few years or is it a group of older, well-maintained vehicles? How much equipment is necessary for your business to operate to its capacity and what does expansion look like, from a cost perspective, should you choose to increase that capacity? These are some of the first questions a buyer will ask. You know your business better than anyone, and having answers to these questions lends itself to a successful sale. Maintenance records, vehicle and equipment values, and well-informed cost analysis will enhance the attractiveness of your business and make the process of a sale go more smoothly.
Additionally, strong recordkeeping that pins specific costs to specific jobs is important from a lending perspective. Some construction-oriented businesses, especially those that use the accrual method of accounting, spread costs across multiple jobs making the true value of a business hard to pin down. It’s important for a lender (and a buyer) to be able to glean the true profit margin of a given job so they can apply that knowledge across the entirety of your company’s workload and develop an understanding of real-world, true market value.
Selling a Construction Industry Business in Oregon
The CCB in Oregon has some specific rules that can affect the way your business is sold. There are, primarily, two types of business sales: Asset sales and Equity/Stock sales. In an asset sale a business sells its assets, equipment, customers, contracts, employees, facilities, and infrastructure to another business. In an Equity or Stock sale the company itself is sold to a new entity or investor. From a taxation perspective there are pros and cons of both and it’s important to consult with your CPA about which is more suited to your financial needs and specific business environment.
But when we begin having conversations around the requirements of CCB licensees, what happens to apprentices, how contracts for future or current work are effectively transferred, increased ancillary costs (insurance, lines of credit, preferential terms with a vendor) for a business that’s been operating less than 3 years, an asset sale can become arduous or even impossible. The CCB only allows apprentices to work for businesses that have had a license for a minimum of 1 year. If a construction business has many, or even dozens, of open contracts, in an asset sale each contract must be separately transferred to the purchasing entity. Losing preferential terms with a vendor or increased insurance costs as a result of being a new construction industry business can reduce the overall income generated by a business being purchased thus altering its value and potentially leading to a failed sale.
A skilled and knowledgeable M&A Specialist can help you navigate these issues and give you the counsel that leads to a successful sale at a premium price. If you’re thinking of selling in the near term or even a few years down the road, contacting a broker experienced in the field is a prudent choice to make sooner rather than later. While we encourage any business owner to perform their diligence before choosing which broker to move forward with, a skilled and knowledgeable professional intermediary from IBA is a great place to start the interview process.
If you have questions relating to the content of this article or the process associated with selling a construction industry company, Joseph Hollcraft would welcome the opportunity to talk with you. Mr. Hollcraft can be reached at (503) 739-4880 or joseph@ibainc.com.
IBA, the Pacific Northwest’s premier business brokerage firm since 1975, is available as an information resource to the media, business brokerage, mergers & acquisitions, real estate, accounting, legal, and financial planning communities 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”.