Valuation Multiples for a Specialty Contracting Business
Specialty contracting offers a unique opportunity to take part in the multi-trillion-dollar construction industry. Businesses in this industry provide essential services such as HVAC, electrical, plumbing, and carpentry services. As such, running a specialty contracting business can be a rewarding business venture. Whether you’re planning to buy, grow, or sell a specialty contracting business, obtaining a business valuation is crucial. During a business valuation, business appraisers may use valuation multiples to get an accurate estimate of your specialty contracting business’s value. Understanding valuation multiples for a specialty contracting business can give you a clear picture of your business’s financial performance.
This article will discuss some common multiples that Peak Business Valuation frequently works with when valuing a specialty contracting business. Please note, the values mentioned here are averages. For specific guidance, it is best to obtain a business valuation for a specialty contracting business.
At Peak Business Valuation, business appraiser, we work with individuals interested in buying, growing, or selling specialty contracting businesses across the country. We are here to provide you with a specialty contracting business valuation. In addition, we can answer any questions you may have on valuation multiples for specialty contractors. Get started today by scheduling a free consultation with Peak Business Valuation below!
Valuing a Specialty Contracting Business
When valuing a specialty contracting business, business appraisers often use the market approach. This valuation approach uses valuation multiples to determine the fair market value of the specialty contracting business. In the following sections, we explore common valuation multiples for specialty contracting businesses. For additional details, check out How to Value a Specialty Contracting Business or reach out to Peak Business Valuation!
Valuation Multiples for Specialty Contracting Businesses
Below is an image showing the average range of valuation multiples for a specialty contracting business. To identify which multiples are most appropriate for your specialty contracting business, consider obtaining a business valuation. Peak Business Valuation is here to assist you! Schedule your free consultation with us today.
Disclaimer: These multiples are intended for educational purposes only. The information provided does not constitute valuation advice, nor does it represent the valuation opinion of Peak Business Valuation or its professionals. For personalized guidance, consult a qualified business valuation expert.
What is a Valuation Multiple?
Valuation multiples are essential tools for determining the fair market value of a specialty contracting business. They determine a specialty contracting business’s value by analyzing financial metrics such as earnings, cash flow, and sales. For instance, SDE multiples are common when valuing a specialty contracting business based on its seller’s discretionary earnings (SDE).
For example, if a specialty contracting business has $645,000 in seller’s discretionary earnings (SDE) and receives a 2.80x SDE multiple, its estimated value would be $1,806,000 (2.80 times $645,000). Alternatively, if it transacts at a 3.30x multiple, the business’s value would be $2,128,500 (3.30 times $645,000).
As a professional business appraiser, Peak Business Valuation specializes in valuing specialty contracting businesses with valuation multiples. Below, we detail SDE, EBITDA, and revenue (REV) multiples for specialty contractors. Keep in mind that every business is unique, so the range of values may vary.
SDE Multiples for a Specialty Contracting Business
Average SDE Multiple Range: 2.84x – 3.28x
According to Peak’s data, specialty contracting businesses generally transact at an SDE multiple ranging between 2.84x and 3.28x. Business appraisers use this multiple to estimate the business’s fair market value by applying it to the seller’s discretionary earnings. The equation is as follows:
SDE X Multiple = Business Value
For example, if a specialty contracting business generates $655,000 in seller’s discretionary earnings and transacts at a 3.10x multiple, the estimated value is $2,030,500.
$655,000 X 3.10x = $2,030,500
Peak Business Valuation often relies on SDE multiples when valuing specialty contracting businesses. To calculate SDE, a business appraiser adjusts the specialty contracting business’s operating profit by adding back specific expenses that a new owner is unlikely to incur. These may include non-recurring or non-essential business expenses, owner’s compensation, and personal expenses. This process helps Peak Business Valuation assess the cash flow potential of the specialty contracting business. For further details, see Understanding Seller’s Discretionary Earnings.
EBITDA Multiples for Specialty Contracting Businesses
Average EBITDA Multiple Range: 2.84x – 3.28x
Next, EBITDA multiples for specialty contracting businesses fall between an average multiple range of 2.84x and 3.28x. Valuation analysts use this multiple to value the business by applying it to the company’s EBITDA. The equation is:
EBITDA X Multiple = Business Value
For instance, if a specialty contracting business generates $575,000 in EBITDA and transacts at a 2.95x multiple, the business’s estimated value would be $1,696,250.
$575,000 X 2.95x = $1,696,250
EBITDA multiples are beneficial for assessing the return on investment (ROI) of a specialty contracting business. At Peak, we may use EBITDA multiples since they help normalize financial data, allowing experts to compare similar businesses in the industry.
REV Multiples for a Specialty Contracting Business
Average REV Multiple Range: 0.47x – 0.78x
Finally, specialty contracting businesses typically sell at a revenue multiple within the range of 0.47x to 0.78x. Business appraisers calculate the specialty contracting business’s value by multiplying its revenue by the applicable multiple.
Revenue X Multiple = Business Value
For example, if a specialty contracting business generates $3,400,000 in revenue and transacts at a 0.65x multiple, the business would be valued at $2,210,000.
$3,400,000 X 0.65x = $2,210,000
Revenue multiples measure the total sales generated by the business. However, they are generally less reliable than cash flow multiples like SDE or EBITDA. During the valuation process, business appraisers will determine which multiples for specialty contracting best suit your business.
Summary
If you are buying, growing, or selling a specialty contracting business, obtaining a business valuation is vital. As part of the business valuation process, valuation analysts may apply valuation multiples for a specialty contracting business. Understanding valuation multiples for specialty contractors can offer deeper insights into its value. You can leverage this information to make strategic decisions and reach your specialty contracting goals.
As a professional business appraiser, Peak Business Valuation can provide a business valuation for a specialty contracting business. We are also happy to address any questions you may have about valuation multiples for a specialty contracting business or valuing a specialty contracting business. Schedule your free consultation today!
