Selling an M&E contracting business
Why two M&E contractors with the same turnover and profit sell two and a half turns apart, what buyers pay a premium for, and what to fix before you go to market.
Mechanical and electrical is the most misvalued trade in building services, and almost always in the same direction. Owners price themselves as contractors. Buyers price the maintenance book.
Two M&E businesses with identical turnover and identical profit routinely sell two and a half turns apart, and the reason is almost never the quality of the installation work.
The split that decides the multiple
Two M&E contractors, same turnover, same profit. Very different prices.
Why the split matters so much
Installation revenue is won again on every job. You tender, you price the risk, you deliver, and then the revenue is gone and you start again. A buyer purchasing that is purchasing a pipeline and a reputation, both of which walk out of the door with the people who hold them.
Planned maintenance is the opposite. It renews, it is contracted, it is usually priced annually, and the customer has a compliance reason to keep paying. It also tends to generate the reactive and small works income that sits alongside it, which most owners undercount because it arrives in dribs rather than as contracts.
If you are at the project end of that spectrum and you have three years before you want to sell, shifting the mix is the single highest value thing you can do.
What proportion of your revenue actually renews? Most owners guess high. We will work it out properly and tell you what it is worth.
Get a free valuationWhat it is worth
| Turnover | Typical adjusted EBITDA | Indicative enterprise value | Who is likely to buy |
|---|---|---|---|
| £10m | £0.4m to £0.9m | £1.5m to £4m | Regional contractor, management buyout |
| £25m | £1.2m to £2.5m | £5m to £14m | Building services group, FM group buying self delivery |
| £50m | £2.5m to £5.0m | £11m to £33m | Private equity platform, national contractor |
| £150m | £7.5m to £15m | £41m to £113m | Infrastructure and services groups, international entrants |
Guide only. The spread inside any one row is wider than the spread between rows.
What changes as you scale
Indicative. Turnover is a proxy, the size of the earnings is what moves the multiple.
What buyers pay a premium for
Self delivery
Directly employed engineers rather than subcontracted labour. It means margin retained, quality controlled, and a workforce that transfers with the business. A contractor that subcontracts most of its delivery is selling a management function, and it is priced as one.
Critical environment capability
Data centres, pharmaceutical, cleanroom, healthcare. The technical barrier is real, the client relationships are sticky and the margin is better. Businesses with genuine critical environment experience sit above the ranges above.
Accreditation and competence
Gas Safe, NICEIC, BESA membership, F Gas where refrigeration is involved. Individually these are table stakes. What buyers actually pay for is depth: more than one competent person per discipline, and apprentices coming through rather than a reliance on recruiting in a market where you cannot.
Compliance led maintenance
Work driven by a statutory obligation rather than a customer’s discretionary budget. It survives a downturn, which is exactly what a buyer is testing for.
What drags the number down
1. Main contractor concentration
If most of your installation work comes through two or three main contractors, you are exposed to their payment behaviour, their programme and their commercial approach. Buyers discount it heavily, and it is worse when the same contractors hold your retentions.
2. Fixed price work priced in a different market
Long programmes signed on older rates and delivered against current labour and material costs. A buyer will look at the contracts still running and price the exposure, and if it is uncomfortable they will want it retained by you.
3. Design liability you did not price
Contractor designed portions bring professional indemnity exposure that lasts long after the job. Cover has to be maintained for years, and a buyer will want to know what has been designed, by whom, and what insurance sits behind it.
4. Retentions and the cash cycle
Held for twelve months or more, often on jobs completed a year ago, and frequently chased badly. Buyers set a normal working capital level that includes them, so the cash on your balance sheet is rarely yours to keep.
5. The owner holding the relationships
Common in this trade, because the work is won on trust built over decades. If the framework positions and the repeat clients are yours personally rather than the business’s, that is the risk a buyer prices hardest.
6. Engineers you cannot replace
A small number of people who hold the technical competence, the authorisations and the client confidence. Depth is worth a premium and thinness is worth a discount.
Recognise four or five of those? Most M&E owners do. Which two are actually costing you the most is the useful question.
Get a free valuationWho is buying
Building services groups adding regional coverage or a discipline they currently subcontract.
Facilities management groups buying self delivery, because subcontracting the engineering on a hard FM contract destroys the margin they bid it at.
Private equity platforms consolidating building services, typically buying a maintenance led business as a platform and adding installation capability around it.
National and international contractors entering a region or a sector where organic growth would take too long.
What they have in common is that they are buying recurring revenue and engineers. The installation business usually comes along with it rather than being the reason.
What to fix, and how long it takes
- Separate maintenance from projects in your accounts. Weeks. Most M&E businesses cannot produce this cleanly and it is the first thing a buyer asks for
- Convert reactive customers onto planned contracts. Six to eighteen months, and it is the fastest route to a better multiple
- Chase retentions properly. Six months, and it improves the cash position immediately
- Get yourself out of winning the work. Twelve to twenty four months, and it is the hardest one
- Build accreditation and authorisation depth. Six to twelve months
- Reduce main contractor concentration. Two to three years, because you have to win the replacement work first
Buyers look at three years of accounts, so a change made this year is only fully visible in the one after next.
The process
- Valuation and preparation. Maintenance separated, adjusted earnings agreed, contract exposure understood.
- A market test. Our 30 day market test establishes whether the appetite exists at that value, with your money back if it does not.
- Approaching buyers, on and off market.
- Offers and heads of terms.
- Diligence. Here that means contract by contract review, work in progress, retentions, design liability, insurance history and the maintenance renewal record.
- Completion and handover.
Where to start
With your earnings properly adjusted and your revenue split honestly between what renews and what does not. Our adjusted EBITDA calculator handles the first, and ranges for adjacent trades are on the multiples by sector page.
Answered.
What multiple do M&E businesses sell for?
Indicatively four to six and a half times adjusted EBITDA for a business of reasonable size, with the position inside that range decided mostly by how much of the revenue is planned maintenance rather than installation. Critical environment capability sits above the range, and heavy main contractor concentration below it.
Why is maintenance worth so much more than installation?
Because it renews without being won again. Installation revenue disappears when the job finishes and has to be re tendered. Maintenance is contracted, usually compliance driven, and it survives a downturn, which is exactly what a buyer is testing for.
Do I keep the cash on the balance sheet?
Rarely all of it. A buyer sets a normal working capital level the business must be handed over with, and in M&E that includes retentions held by customers and uncertified applications, both of which can be substantial.
What will diligence focus on?
Contract by contract review of work in progress and costs to complete, the retention position, contractor designed portions and the insurance behind them, and the renewal record on the maintenance book. The last one is often the thing that confirms or undermines the price.
Find out what it is worth
A free valuation with your maintenance and project revenue separated properly, so you can see what a buyer would actually price. Costs nothing.
Get a free valuation