Valuation Multiples for Fence Construction

Valuation Multiples for Fence Construction

The fence construction industry includes businesses that primarily construct and install fencing. In the United States, there are nearly 54,000 fence construction companies. These businesses generate about $11.3 billion in revenue. The primary driver of this industry is residential construction. As such, the high demand for residential construction increased the demand for fencing. However, this rise is expected to decline as the residential market cools with rising interest rates and construction costs. Increases in the price of steel and purchase costs are also anticipated to lead to a decline in profit for fence construction businesses. These factors all impact the value of a fencing company. As well as valuation multiples for a fencing company.

Valuing a Fence Construction Company

There are many methods a valuation expert uses to value a fence construction company. Often valuation multiples for fence construction are used to determine a fair market value. A business valuation identifies the methods the expert uses and the applicable valuation multiple for the fencing company. If you plan on buying or selling a fence construction company, understanding the value is key.

A business appraisal will help determine the fair market value. If you are buying a fencing business, the business valuation will help you when negotiating a fair purchase price. It is also useful in understanding the strengths and weaknesses of the fence construction company.

If you plan on selling a fence construction company, a business valuation will help you to understand how to maximize the value. It will also help in determining a fair listing price – you don’t want to list your business for sale at too high of a value or too low of a value.

Peak Business Valuation, business appraiser, values fence construction companies across the country. Below is a brief overview of average valuation multiples for fence construction. Keep in mind that these multiples are industry averages. Schedule a free consultation for specific information about a fence construction business you are buying or selling. We are happy to answer any questions you have about valuing a fencing business.

Also, be sure to read Valuing a Fence Construction Business. And Value Drivers for Fence Construction.

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Valuation Multiples for Fence Construction Companies

In the following picture, we show average multiples for fence construction companies. These multiples are what fence contracting businesses transact and are valued at. Below are SDE, EBITDA, and REV multiples for fence construction businesses. Keep in mind that these numbers are only a guide. Please reach out to discover how a business valuation can help and applicable valuation multiples for your fence construction business. Schedule a free consultation today with Peak Business Valuation, business appraiser.

Valuation Multiples for Fence Construction Companies

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.

 

What is a Valuation Multiple?

A valuation expert values a fencing business using a variety of valuation methods. This can include using valuation multiples for a fence construction company. A valuation multiple is like a ratio. It compares two factors. For instance, a common valuation multiple is the SDE multiple. The SDE multiple compares the seller’s discretionary earnings with the implied value of the business. When valuing a fencing company, the expert will look at multiples of similar fencing companies and compare them to your fencing company. The expert will then apply an applicable multiple to your fencing business. This will help determine a fair market value or range of value for the fence construction business.

For example, a fence construction business makes $483,000 in seller’s discretionary earnings. Using a 2.69x SDE multiple, the business has an implied value of $1,299,270. ($483,000 times 2.69x) Whereas, if the valuation expert uses a 3.23x SDE multiple, the business is worth approximately $1,560,090. ($483,000 times 3.23x)

As a business appraiser, Peak Business Valuation works with fencing contractors and fence construction companies across the nation. Below are average SDE, EBITDA, and REV multiples for fence construction businesses. If you are looking to buy, sell, or grow a fence construction business, schedule a free consultation. Understanding the value of your fence construction business is key to maximizing the value.

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SDE Multiple

Average SDE Multiple range: 2.14x – 3.23x

According to our data, fence contracting businesses transact on average between a 2.14x – 3.23x SDE multiple. The valuation expert calculates the implied value of the business using the following calculation. Apply the applicable multiple to the seller’s discretionary earnings.

SDE X Multiple = Value of the Business

For instance, a fencing contractor makes $370,000 in seller’s discretionary earnings. It transacts at a 2.23x SDE multiple. In this scenario, the business has an implied value of $825,100.

$370,000 X 2.23x = $825,100

The seller’s discretionary earnings multiple is a common cash flow multiple that fence construction companies transact on. To calculate the seller’s discretionary earnings, take the company’s operating profit and add back any expenses a new owner may not incur. These expenses can include a fair owner’s compensation (which can increase or decrease the cash flow), personal expenses ran through the business, or any other non-recurring or non-related business expenses.

EBITDA Multiple

Average EBITDA Multiple range: 3.27x – 4.36x

Our data shows that the average EBTIDA multiple for a fence construction business ranges between 3.27x and 4.36x. To calculate the implied value of the business times the multiple by EBITDA. See below for the calculation.

EBITDA X Multiple = Value of the Business

For example, a fence construction business has an EBITDA of $327,000. The valuation expert determines an applicable multiple is a 3.62x EBITDA multiple. Using the above calculation, the fence construction company is worth approximately $1,183,740.

$327,000 X 3.62x = $1,183,740

The EBITDA multiple measures a company’s return on investment (ROI). Investors like to look at this multiple when valuing a business. It can be preferred as it normalizes differences in capital structure, taxation, and fixed assets. Normalized ratios allow for comparisons to similar businesses. Normalized ratios can more accurately signify the future earnings a buyer can expect from the business.

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REV Multiple

Average REV Multiple range: 0.38x – 0.81x

According to our data, fencing companies sell for an average of 0.38x – 0.81x of revenue. To calculate the implied value of the business, multiply the amount of revenue or sales a fencing business makes by the valuation multiple. Be sure to use the most recent period of 12-month revenue prior to the valuation date.

Revenue X Multiple = Value of the Business

For instance, a fencing business makes $2.4 million in revenue. It transacts at a 0.66x REV multiple. In this example, the fencing company has an implied value of $1,584,000.

$2,400,000 X 0.66x = $1,584,000

When valuing a fencing company, each scenario is different. There are many factors that impact the business and the valuation multiple the expert uses to value the fence construction company. The expert will determine what multiples are most appropriate for your fence construction company. Often small businesses transact on cash flow multiples such as SDE and EBITDA. This is because cash flow multiples consider expenses such as COGS, salaries, rent, and expenses, along with others. Often several valuation methods are used to determine the fair market value of a fencing company.

Summary

When looking at valuation multiples for fence construction businesses, keep in mind many factors impact these. The valuation expert will review your company’s financials and key value drivers to determine the applicable multiple to use when determining the fair market value. As such, a business appraiser at Peak Business Valuation would love to talk with you more about your fencing business.

Peak Business Valuation, business appraiser, works with dozens of fence contractors who are looking to buy or sell a fence construction business. We are happy to provide a business valuation and answer any questions you have about valuing a fence construction company. Schedule a free consultation today to get started!

 

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