Selling a construction business
What yours is likely to be worth, who actually buys in this sector, what drags the number down in construction specifically, and what to fix before you start.
Construction businesses are harder to sell than most, and they sell for lower multiples than most. Not because buyers dislike the sector, but because the things that make a contractor profitable in a good year are the same things that make a buyer nervous.
This page covers what yours is likely to be worth at £10m, £25m, £50m and £150m of turnover, who would actually buy it at each of those sizes, what specifically drags the number down in this trade, and what you can fix before you go anywhere near a process.
What construction businesses are worth
The trade you are in matters more than the word construction.
Not all construction trades sell for the same multiple
Indicative ranges of adjusted EBITDA for UK owner managed businesses. Where you sit inside your own band matters more than the band itself.
What it looks like at your size
Turnover is a rough guide rather than the driver. What actually moves the multiple is the size of the earnings, which is why a specialist trade at £25m can price like a main contractor at three times that.
Margins in this sector run from roughly two to four per cent in main contracting to eight to twelve per cent in specialist trades, so the ranges below are wide by necessity.
| Turnover | Typical adjusted EBITDA | Indicative enterprise value | Who is likely to buy |
|---|---|---|---|
| £10m | £0.4m to £0.9m | £1.5m to £4m | Management buyout, local trade buyer, adjacent trade |
| £25m | £1.0m to £2.2m | £4m to £11m | Regional contractor, first bolt on for a platform |
| £50m | £2.0m to £4.5m | £9m to £26m | National contractor, private equity platform |
| £150m | £6m to £13.5m | £33m to £100m | Private equity, listed or international acquirer |
What changes as you scale
The multiple rises with size, and so does the number of buyers able to transact.
Those ranges are deliberately wide, and every business is valued on its own strengths and weaknesses rather than on the row it sits in. At £50m of turnover the gap between the bottom and the top of the range is around £17m. Nothing on this page can tell you which end you are at, because that is decided by your contracts, your customer spread, your retention position and how much of the business depends on you. That is a reading of your accounts, not a lookup.
Which end of the range are you at? We will read the accounts and tell you, with the reasoning. No cost, no obligation, and nothing gets marketed.
Get a free valuationThree things change as you scale, and they compound.
The buyer pool widens. At £10m your realistic buyers are your own management team or someone within an hour’s drive. At £150m you are a target for acquirers who have never heard of you and will find you anyway.
The multiple rises, because larger earnings carry less key person risk, support more borrowing and attract more competition. The same business ten times the size does not sell for ten times the price, it sells for rather more.
And the process changes. A £10m sale is a conversation. A £150m sale is a competitive process with a data room, a vendor diligence report and several parties who will each want something different.
Main contracting sits at the bottom for a reason. You carry the programme risk, the subcontractor risk and usually the price risk, and every pound of profit has to be won again on the next job. A buyer is purchasing a pipeline, not an income stream.
Move towards specialist trades, compliance work and anything with a maintenance tail, and the multiple rises. Testing and inspection businesses sell for what they do because the revenue renews whether anyone is building or not.
Ranges for every other sector we work in are on the business sale multiples by sector page. Within your own band, the spread is wider than the gap between bands. The valuation calculator will show you roughly where you sit and why, though it can only work with what you tell it. What it cannot do is read your contracts or know which acquirers are currently looking in your trade.
Who actually buys construction businesses
Larger regional and national contractors
Buying geography, a discipline they subcontract too much of, or a framework position they cannot get on to themselves. They pay best when you hold something they cannot replicate: an approval, a client relationship of twenty years, or a workforce in a region where they cannot recruit.
Private equity backed platforms
Active in specialist trades rather than general contracting, and almost always in anything with recurring compliance or maintenance revenue. They want a business that can be a platform or a bolt on, and they will pay for management depth because they need the team to stay.
Adjacent trades moving across
An M&E contractor buying controls, a groundworks business buying drainage, a roofing contractor buying cladding. Cheaper for them than building the capability, and they understand your risks because they carry the same ones.
Your own management team
Common in construction, because the people who could run it are already running it and an outside buyer struggles to underwrite a business that depends on relationships they cannot see. Covered on the management buyout page.
What drags value down in construction specifically
1. Cash that is real but not available
Retentions held for twelve months or more, applications submitted but not certified, and a debtor book stretched by payment terms nobody in this industry respects.
Why a profitable contractor can be worth less than the numbers suggest
Illustrative £50m turnover business. The money is real, it is just not available.
A buyer will set a normal working capital level the business has to be handed over with, and in construction that figure is large. Owners who expect to walk away with the cash on the balance sheet are usually disappointed, and it is better to understand that early than to discover it in the completion accounts.
2. Contract accounting nobody can verify
Revenue recognition on long contracts involves judgement about costs to complete. A buyer’s accountants will test every one of those judgements, and where they cannot verify them they will assume the less favourable answer.
This is the single biggest cause of price reductions between heads of terms and completion in this sector. A contractor with a properly maintained contract by contract schedule, reviewed monthly, is in a completely different negotiating position to one who works it out at year end.
3. Fixed price work priced in a different market
Contracts signed on last year’s rates and delivered on this year’s costs. A buyer will look at the contracts still running and price the exposure, and if the answer is uncomfortable they will want it retained by you rather than inherited.
4. The liability tail
Construction carries risk long after the job is finished: latent defects, collateral warranties, professional indemnity that has to be maintained for years after you stop trading. Anyone whose work touched residential buildings will face particular scrutiny on building safety exposure.
None of this stops a sale. All of it gets priced, and it is better understood than discovered.
5. One job that matters too much
Very common and very expensive. A contract that is thirty per cent of turnover means a buyer is underwriting one client decision. Worse if it is also your most profitable work, because then the risk and the earnings are the same thing.
6. Bonding that depends on you
If your surety facility rests on your personal covenant or a personal guarantee, a buyer needs to know it survives the change of ownership. Worth establishing early, because it can shape the deal structure.
Most of those six apply to most contractors. Which ones are actually costing you, and how much, is a different question. We will tell you which two are worth fixing first.
Get a free valuationWhat to fix, and when to start
What to fix, and how long before it shows in the accounts
The reason to start two or three years out rather than three months.
The cheap fixes are fast. Chase your retentions properly and the cash position improves in months. Accreditations and framework applications take a few months to a year and open doors that buyers value.
The valuable fixes are slow. Reducing customer concentration takes years because you have to win the replacement work first. Building a maintenance or compliance income stream alongside project work is the single highest value change a contractor can make, and it is a two to three year project.
And because buyers look at three years of accounts, something you fix this year is only fully visible in the one after next. Which is why the owners who do best started this conversation long before they intended to sell.
Selling in the next two or three years? That is the right time to get a view, while there is still time to act on it. A valuation now costs nothing and tells you what to work on.
Get a free valuationWhat the process looks like
- Valuation and preparation. A realistic number, the working capital position understood, the contract schedules in order.
- A market test. Our 30 day market test establishes whether the appetite exists at that value before you commit to anything, with your money back if it does not.
- Approaching buyers. On and off market, including trade buyers who are not looking but would move for the right business.
- Offers and heads of terms. Price, structure, what is deferred and what is retained.
- Diligence. In construction this means contracts, WIP, retentions, health and safety record and insurance history. It is heavier than most sectors.
- Completion and handover. Often with a period of involvement, particularly where client relationships need transferring.
Six to nine months from start to completion is normal, and preparation done beforehand takes weeks out of it.
Where to start
With the number, and with an honest view of the working capital position underneath it. Both are free to establish and neither commits you to anything. If your figures are not adjusted yet, the adjusted EBITDA calculator is the place to begin.
Answered.
What multiple do construction businesses sell for?
Indicatively, main contracting sits at the lower end and specialist, compliance and maintenance led trades at the higher end. The spread within any one trade is wider than the gap between trades, and it is driven by recurring revenue, customer concentration and how much depends on the owner.
Do I keep the cash in the business?
Rarely all of it. A buyer sets a normal working capital level the business has to be handed over with, and in construction that figure is large because of retentions, uncertified applications and stretched debtors. Understanding it early avoids an unpleasant surprise in the completion accounts.
What will buyers scrutinise most?
Contract accounting and work in progress. Revenue recognition on long contracts involves judgement, and where a buyer’s accountants cannot verify those judgements they assume the less favourable answer. A contract by contract schedule reviewed monthly is the best protection there is.
How long before improvements show up in the price?
Quick fixes like retention chasing and accreditations show within months. The valuable ones, reducing customer concentration and building maintenance income, take two to three years, and because buyers look at three years of accounts the benefit lands later still.
Find out what it is worth
A free valuation, and an honest view of the working capital position underneath it. Costs nothing and commits you to nothing.
Get a free valuation