Selling a construction company is harder than selling most businesses. The buyer is paying for future profit, and that depends on the backlog, the people, the bonding and the quality of the numbers. The companies that sell for the best price look the same on paper as they do in real life. They have clean monthly financials, a WIP schedule that holds up, steady margins, and a business that doesn’t depend on one owner. The same goes for HVAC and other service contractors.
This guide covers who buys construction companies, what buyers look at, how they set the price, and how to get ready.
Who buys construction companies
- A competitor or a company in a related trade, looking for more capacity, customers, licenses or a new region
- Private equity, often in trades with service and maintenance work
- Key employees, through a management buyout or an ESOP (employee stock ownership plan)
- The next generation of the family
Each kind of buyer looks for different things and pays in different ways: cash at closing, payments over time, or a share tied to future results.
What buyers look at
- Reliable financial statements, usually several years of them, reviewed or audited by a CPA
- The WIP schedule, and whether jobs finish at the margin they showed along the way
- Backlog: signed work, its margin, and when it will be done
- Customer concentration: how much revenue comes from a few customers
- Key people: whether project managers, estimators and customer relationships stay after the owner leaves
- Bonding: whether the company can keep its bonding program under new owners
- Equipment, its condition and what’s owed on it
- Contracts, claims and warranty exposure, including open disputes and liens
- Working capital left in the business at closing
How buyers set the price
Most buyers start from earnings: what the company really earns in a normal year. They adjust for one-time items and for the owner’s pay and personal expenses run through the business. Then they adjust for risk. A strong backlog, steady margins and a team that stays raise the price. Profit fade, one big customer, an owner who holds every relationship, or a bonding program that rests on the owner’s personal guarantee lower it. Buyers also look hard at working capital, because a contractor needs cash to carry its jobs. The deal usually sets how much has to stay in the company.
How a buyer reads your WIP history
We’ve seen a buyer walk away from a deal over the numbers. Buyers read WIP history closely. If jobs regularly finished several points below the margin they showed halfway through, a buyer decides the reported earnings are too high and lowers the offer, or leaves. WIP schedules that held up job after job draw more buyers and a stronger price.
How to get ready to sell
- Close the books every month, on time, with a WIP schedule that ties to the financial statements.
- Get CPA statements at the level buyers expect. See audited vs reviewed financial statements.
- Fix margin fade. Check cost to complete with your project managers every month, so the WIP holds up.
- Separate personal and business spending, and document anything a buyer should add back.
- Build a team that runs without you. Hand customer relationships to your project managers and estimators.
- Clean up the balance sheet: old receivables, loans to owners, equipment you don’t use. See the construction company balance sheet.
- Talk to your surety early about how bonding would work after a sale.
- Put the plan in writing, with a timeline, and update it as you go.
Your deal team
A sale usually takes several advisors. An M&A advisor or business broker finds buyers and runs the process. An attorney handles the contracts, and your CPA handles taxes and the deal structure. A CFO prepares the financials, answers the buyer’s questions and shows what each offer means for you.
How we help
Our CFOs help with mergers, acquisitions, ESOPs and exit planning. We help you get ready to sell or bring in a partner, with books, WIP schedules and forecasts that buyers, lenders and investors can trust. See our growth and exit planning services, read about what a construction CFO does, or see all our construction accounting services.
FAQs
How do you value a construction company?
Most buyers start from normal-year earnings, adjusted for one-time items and owner expenses, then adjust for backlog, margin history, customer concentration, key people and bonding.
What do buyers look for in a construction company?
Reliable financial statements, a WIP schedule that holds up, backlog, steady margins, key people who stay, bonding that continues and enough working capital.
When should I start getting ready to sell?
Well before you plan to sell. Buyers look at several years of results, so the books, WIP schedules and margins need to hold up for years, not just the last one.
Can employees buy a construction company?
Yes, through a management buyout or an ESOP, an employee stock ownership plan.
Does bonding transfer when a construction company is sold?
Not automatically. The surety will look at the new owners, so talk to your surety agent early.
