How to Value a Concrete Company
Concrete companies pour, construct, and finish various concrete structures. This can include driveways, sidewalks, walls, etc… According to IBIS World, the concrete industry has seen healthy growth over the past several years, generating over $76 billion in revenue. Moving forward, we can expect industry revenue to continue to grow. This presents an opportunity for those looking to buy, grow, or sell a concrete company. It is important to note, however, that the concrete industry is extremely fragmented and competitive. To succeed, it is important to understand how to value a concrete company.
To learn how to value a concrete company, it is best to receive a business valuation. During a business valuation, a business appraiser will calculate the fair market value of a concrete company. In addition, the valuation expert assesses the risks and opportunities of a concrete company. This information can help operators understand how to maximize the value of a concrete business.
As a professional business appraiser, Peak Business Valuation values concrete companies on a regular basis. We are happy to provide you with a business valuation for a concrete company. Additionally, Peak can discuss any inquiries you may have on how to value a concrete company. Start now by scheduling your free consultation with Peak below!
How to Value a Concrete Company
When deciding how to value a concrete company, business appraisers consider a variety of valuation approaches. Typically, valuation analysts rely on the market approach and/or the income approach to value a concrete business. Both methods are effective, however, each provides a different perspective on the value of a concrete company. During a business valuation, a business appraiser will calculate the best approach for your concrete business. This can include using a combination of valuation approaches.
Valuing a Concrete Company Using the Market Approach
The market approach is a common method for valuing a concrete company. This approach is similar to the real estate appraisal process. When valuing a home, a real estate appraiser looks at similar properties that recently sold in the area. This helps them accurately determine the value of the home. When valuing a concrete business, a business appraiser assesses similar businesses that recently sold on the market. If the company is private, the valuation analyst uses private transaction databases to gather relevant information.
Multiples for a Concrete Company
When using the market approach, business appraisers utilize valuation multiples. These are ratios that compare the value of a concrete company to financial metrics like sales, cash flow, and earnings. To find the valuation multiples for a concrete company, a valuation expert applies the appropriate NAICS or SIC code. In the following section, we highlight SDE, EBITDA, and REV multiples for a concrete company.
SDE (Seller’s Discretionary Earnings) Multiples for a Concrete Company
- SDE multiples are common in small business valuation. The SDE multiple measures the value of a concrete business in relation to its seller’s discretionary earnings.
EBITDA Multiples for a Concrete Company
- EBITDA multiples measure a concrete company’s earnings before interest taxes, depreciation, and amortization. This reflects the return on investment a concrete company can generate.
REVENUE or SALES Multiples for a Concrete Company
- The REVENUE or SALES multiple measures a concrete company’s value based on the total amount of sales it generates.
To learn more about how to value a concrete company using the market approach, see Valuation Multiples for a Concrete Company.
Valuing a Concrete Company Using the Income Approach
The income approach is another common method for valuing a concrete company. This valuation approach assesses the future earning potential of a concrete business. In addition, the income approach considers the risks associated with buying, expanding, or selling a concrete business. We highlight a few common risks for concrete companies below.
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- Competition: The concrete industry is very fragmented and competitive. To succeed, concrete companies need to create diverse revenue streams to stand out from competitors.
- Financial Performance: Operating a concrete business can come with financial challenges. As such, it is vital for concrete companies to have strong financial planning.
- Location: The location of a concrete company plays an important role in its success. It is best for concrete companies to locate in areas with high demand for construction.
- Equipment: Concrete companies use a wide variety of machinery and equipment to complete projects. It is crucial to acquire high-quality machinery and equipment. As such, when valuing a concrete company, a concrete equipment appraisal may be needed.
Methods to Value a Concrete Company Using the Income Approach
Under the income approach, there are several ways to value a concrete business. The most common methods are the capitalization of cash flow method and the discounted cash flow method. Both methods consider the future earning potential of a concrete company. In the following paragraphs, we discuss how to value a concrete company using the capitalization of cash flow method and/or the discounted cash flow method.
Capitalization of Cash Flow Method
The capitalization of cash flow method is best for concrete companies with stable histories. When using this income approach, a business appraiser determines a reasonable amount of earnings for one period. The earnings are divided by a capitalization rate which indicates the rate of return investors can expect. Additionally, the capitalization of cash flow method assesses the risks associated with a concrete company. We discuss a few of these risks above.
Discounted Cash Flow Method
The discounted cash flow method is ideal for concrete businesses with strong financial histories and reliable forecasts. This method involves projecting future earnings over a 3-5-year period. Then, a valuation analyst applies a discount rate to the earnings instead of a capitalization rate. This method measures the value of a concrete company by taking the time value of money into account. Keep in mind, the discounted cash flow method is less common since it relies on future earring estimates which can be subjective.
Summary
There are several valuation methods to consider when deciding how to value a concrete company. At Peak Business Valuation, our appraisers frequently use the market approach and/or the income approach to value a concrete company. Each method uses a different basis of valuation. To understand which valuation approach is most applicable to your concrete company, receive a business valuation. During a business valuation, a valuation expert reveals the fair market value of a concrete company. With this information, you can take the next steps in increasing the value of a concrete business.
Peak Business Valuation is happy to help! At Peak, we work with concrete companies throughout the country. As such, we can provide you with a business valuation for a concrete business. In addition, Peak can answer any questions on valuing a concrete company. Schedule your free consultation with Peak Business Valuation below to get started!
For more information see Valuing a Concrete Company, Value Drivers for Concrete Contractors, and Valuation Multiples for Concrete Contractors.
