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Valuation Multiples for Concrete Contractors

Valuation Multiples for Concrete Contractors

Concrete contractors primarily pour, build, and finish concrete foundations and structural elements. This can include retaining walls, driveways, and sidewalks. Labor in this industry includes works for new builds, additions, alterations, maintenance, and repairs. Within the United States, there are over 55,000 concrete contracting businesses. The concrete contracting industry generates nearly $67 billion in revenue. Due to the high fragmentation of this industry, there are dozens of transactions involving concrete companies. Understanding the value of a concrete contracting business is key in each transaction.

Valuing a Concrete Contracting Business

Knowing the value of a concrete contracting business is an important part of both the buying and selling processes. A business appraisal will help to determine a fair market value and is very useful when negotiating a purchase price. If you are buying a concrete contracting business, you want to be confident in your purchase. Whereas if you are selling a concrete business, you want to ensure the listing price of a business is at a price a potential buyer is willing to consider.

There are several factors that impact the value of a concrete business. Below are some of the items a business appraiser considers when valuing a concrete contracting business.

    • Service Mix
      • Commercial construction verse
      • Residential construction
    • Operating profit and margin
      • Operating costs
    • Impact of current economics
    • Level of owner dependence

For more information refer to Valuing a Concrete Contracting Business. See also Value Drivers for a Concrete Company.

Whether you plan on buying or selling a concrete business it is important to understand the value. Peak Business Valuation has certified business appraisers that can answer all your questions. Get started by scheduling a free consultation with Peak Business Valuation, business appraiser.

Valuation Multiples for a Concrete Contracting Business

You may wonder how a valuation expert determines a fair market value of a concrete contracting business. Often, a business appraiser uses a variety of valuation methods including valuation multiples. Below is a brief overview of average valuation multiples for a concrete contracting business. Keep in mind these numbers are only a guide. For specific information about a concrete business you are buying or selling, schedule a free consultation. Be sure to also check out Value Drivers for Concrete Contractors.

Valuation Multiples For Concrete Contractors

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?

When valuing a business, a business appraiser often uses valuation multiples. A valuation multiple is a ratio. It compares two factors to each other. A common ratio in business valuation is an SDE multiple. The SDE multiple for a concrete business compares the seller’s discretionary earnings with the implied value of the company. A valuation expert looks at similar concrete businesses that have recently sold on the open market when determining an appropriate valuation multiple for your concrete contracting business. They then apply the multiple to your concrete business to get a range of value.

For instance, a concrete contractor makes $550,000 in seller’s discretionary earnings. The valuation expert uses a 2.58x SDE multiple. In this case, the concrete business has an implied value of $1,419,000. ($550,000 times 2.58x) Whereas, if a 2.37x SDE multiple is applied the concrete business is worth $1,303,500. ($550,000 times 2.37x)

As a business appraiser, Peak Business Valuation works with concrete contractors across the country who are looking to buy or sell a concrete business. Below is an average range of valuation multiples for a concrete contracting business. These multiples are what concrete businesses often transact and are valued at. Each business is unique and as such the range of value can be significant. Below we show average EBITDA, REV, and SDE multiples for a concrete contracting business.

SDE Multiple

Average SDE Multiple range: 2.23x – 3.03x

According to our data, concrete contracting businesses transact between a 2.23x – 3.03x average SDE multiple. To derive an implied value of a concrete company, apply the multiple by the most recent 12-months of revenue. The calculation follows:

SDE X Multiple = Value of the Business

For instance, a concrete business generates $660,000 in seller’s discretionary earnings. It transacts at a 2.55x SDE multiple. In this scenario, the concrete business value is approximately $1,683,000.

$660,000 X 2.55x = $1,683,000

Seller’s discretionary earnings is a common cash flow multiple a valuation expert uses when valuing small businesses. It is often most applicable when valuing a concrete contracting business. To calculate SDE you take the company’s operating profit and add back potential expenses a new owner may not incur. This can include the owner’s compensation, any personal expenses ran through the business and other non-related or non-recurring business items.

EBITDA Multiple

Average EBITDA Multiple range: 3.40x – 3.78x

The average EBITDA multiples for a concrete business range between 3.40x – 3.78x. Apply this multiple to EBITDA to derive an implied value of the business. See the calculation below.

EBITDA X Multiple = Value of the Business

For example, a concrete company has an EBITDA of $520,000. It transacts at an EBITDA multiple of 3.73x. Using the above metrics, the concrete contracting business is worth approximately $1,939,600.

$520,000 X 3.73x = $1,939,600

The 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 are more accurate representations of the future earnings a buyer can expect from the business.

REV Multiple

Average REV Multiple range: 0.38x – 0.73x

According to our data, concrete companies sell for an average of 0.38x – 0.73x revenue multiple. You can calculate the implied value of the business by multiplying the amount of revenue or sales a concrete business makes by the valuation multiple.

Revenue X Multiple = Value of the Business

For instance, if a concrete business makes $3,700,000 in revenue. It transacts at a 0.59x REV multiple. Then the business is worth approximately $2,183,000.

$3,700,000 X 0.59x = $2,183,000

A valuation expert will determine what multiples for a concrete business are most applicable. Most often cash flow multiples – SDE and EBITDA – are more relied upon. This is because a revenue multiple does not consider the operations of the business. Cash flow multiples consider expenses that impact the cash flow. This can include COGS, salaries, rent, expenses among others.

Summary

When viewing valuation multiples for a concrete contracting business, keep in mind there are many factors that impact them. These factors will also impact the value of the concrete company. As such, Peak Business Valuation, business appraiser, would love to talk with you about what impacts the value of your concrete company.

Peak Business Valuation, business appraiser, values concrete companies on a regular basis. If you are a concrete contractor and looking to buy or sell a concrete business give us a call. We are happy to answer any questions you have about the value of a concrete contracting business. Get started by scheduling your free consultation today!

 

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