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Valuation Multiples for a Roofing Company

Valuation Multiples for a Roofing Company

Businesses in this industry are primarily engaged in roofing and siding. This includes installation as well as repairs. As specialty contractors, individuals in this industry are in high demand and growing. There are nearly 108,000 roofing contracting companies in the United States. These roofing companies generate over $51.9 billion in revenue. With high demand, and expected growth now is a great time to consider buying or selling a roofing company. The first step in doing so is understanding the value of a roofing company.

Valuing a Roofing Company

There are many aspects a valuation expert considers when valuing a roofing company. This includes how the service mix is split – residential vs commercial, what the management team looks like, and the online reputation and presence, among other factors. The overall economic health can also significantly impact the value of a roofing company. For more information, see Value Drivers for a Roofing Company as well as Valuing a Roofing Company.

Understanding the value of a roofing business is vital when selling. A business valuation can help you determine a fair listing price. Most businesses don’t sell because they are over-priced or have high owner dependence. A business valuation can help you understand how a buyer views your business. Peak Business Valuation, business appraiser, spends time helping owners prepare to sell their business for maximum value.

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If you are looking to buy a roofing company, a business valuation can help when negotiating a purchase price. Many businesses are over-priced. Understanding the fair market value can help you know what drives the value and the strengths and weaknesses of the roofing company. A business valuation is an important part of the due diligence process and can help you feel confident in your business purchase. Schedule a free consultation today to get started.

A valuation expert uses a variety of methods when determining the value of a roofing business. Valuation multiples are often used. Below we describe what a valuation multiple is used and the average ranges of valuation multiples for roofing companies. Keep in mind the below numbers are only a guide. For specific information about a roofing company, schedule a free consultation. Peak Business Valuation, business appraiser, is happy to answer any questions you have about valuing a roofing business.

Valuation Multiples for a Roofing Company

Valuation Multiples For A Roofing Company

Disclaimer: These multiples are for educational purposes only. As such, the information provided does not constitute valuation advice. These multiples do not represent the valuation opinion of Peak Business Valuation or its valuation professionals. Instead, seek the guidance and advice of a qualified business valuation professional about any matter in this article.

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What is a Valuation Multiple?

A valuation expert values a roofing company using a variety of methods. These methods include using valuation multiples. A valuation multiple is like a ratio, it compares two factors to each other. One of the common ratios in business valuation is an SDE multiple. The SDE multiple compares the seller’s discretionary earnings with the value of the company. The valuation expert will look at multiples of similar roofing companies that have recently sold to determine an applicable multiple for your roofing company.

For example, a roofing company makes $850,000 in seller’s discretionary earnings. The valuation analyst applies a 2.05x SDE multiple. In this case, the business has an implied value of $1,742,500. ($850,000 times 2.05x) However, if the valuation expert uses a 2.68x SDE multiple, it would imply the value of the company would be $2,278,000. ($850,000 times 2.68x)

As a business appraiser, Peak Business Valuation helps individuals understand the value of a roofing business. This is helpful whether you plan to buy, sell, or expand a roofing company. Below is a range of valuation multiples that roofing companies typically transact and are valued at. Each roofing company is unique and many factors can impact the range of value. Below are SDE, EBITDA, and REV multiples for a roofing company.

SDE Multiple

Average SDE Multiple range: 1.88x – 2.73x

According to our data, roofing companies transact between an SDE multiple between 1.88x – 2.73x. To derive an implied value of the company, apply the SDE multiple to the most recent 12-month period of revenue. The calculation is as follows:

SDE X Multiple = Value of the Business

For instance, a roofing company generates $625,000 in sellers’ discretionary earnings. It transacts at a 2.41x multiple, then the business value is worth approximately $1,506,250.

$625,000 X 2.41x = $1,506,250

Seller’s discretionary earnings is a common cash flow multiple. A valuation expert often uses it when valuing small business transactions particularly roofing companies. They calculate it by taking the company’s operating profit and adding back potential expenses a new owner may not incur. These expenses can include the owner’s compensation, personal expenses, and other non-recurring or non-related business expenses.

EBITDA Multiple

Average EBITDA Multiple range: 2.47x – 3.55x

The average EBITDA multiples for a roofing company range between 2.47x – 3.55x. Apply this multiple to EBITDA to derive an implied value of the business. The calculation is as follows:

EBITDA X Multiple = Value of the Business

For example, a roofing company has an EBITDA of $530,000 and transacts at an EBITDA multiple of 3.05x. Using the above metrics, the roofing company is worth approximately $1,616,500.

$530,000 X 3.05x = $1,616,500

An EBITDA multiple measures a company’s return on investment (ROI). This multiple is preferred as it is normalized for differences in capital structure, taxation, and fixed assets. Normalized ratios allow for comparisons to similar businesses. Normalized ratios also more accurately represent the future earnings a buyer can expect from the business.

REV Multiple

Average REV Multiple range: 0.33x – 0.51x

According to our data, roofing businesses sell for an average of 0.33x – 0.51x revenue multiple. A valuation expert calculates the implied value of the roofing business using the following equation. Multiply the amount of revenue or sales a roofing company makes by the applicable valuation multiple.

Revenue X Multiple = Value of the Business

For instance, a roofing company makes $3,200,000 in revenue and transacts at a 0.43x multiple. Then, using the calculation, the business is worth approximately $1,376,000.

$3,200,000 X 0.43x = $1,376,000

A valuation expert will determine what valuation multiples are most applicable to your roofing business. In some cases, a revenue multiple is less relied upon because it does not consider the operations of the business. Therefore, it is important to look at cash flow multiples – SDE and EBITDA. Cash flow multiples consider expenses such as COGS, salaries, rent, among other expenses.

Summary

When looking at valuation multiples for a roofing company, keep in mind many factors impact the business. These factors impact the multiple the expert uses to value the roofing business. Peak Business Valuation, business appraiser, would love to talk with you about factors that impact the value of a roofing business you are buying or selling.

As a business appraiser, Peak Business Valuation works with roofing companies across the country. We have experience with both the buyer and the seller of a roofing business. We love helping individuals understand the value of a roofing business. For questions or to receive a business valuation for a roofing company, schedule a free consultation.

 

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