Selling a utility connections business

Connections businesses do not sell like contractors, and the people who value them as contractors get the number wrong in both directions.

The accreditations are a genuine barrier to entry that a buyer cannot hire their way past. The asset adoption value income is high margin and completely project dependent. And a large part of the market is won against the incumbent network operator rather than against other contractors. None of that behaves like a groundworks business.

This page covers what a connections business is worth, what buyers actually pay for, and the one question that decides more of the price than anything else.

What the market actually is

Since the connections market was opened to competition, the work splits into two parts. Contestable works, the design and construction that an accredited provider can compete for. And non contestable works, which remain with the incumbent network operator.

An independent connection provider competes for the contestable element. Accreditation is what permits it, assessed under schemes administered by Lloyd’s Register Quality Assurance on behalf of the network operators:

• NERS, the National Electricity Registration Scheme, for work on electricity distribution networks
• GIRS, for gas
• WIRS, for water and wastewater
• MURS, for multi utility works

Once built, the network is adopted either by the incumbent operator or by an independent distribution network operator, which then owns and runs it and earns from distribution use of system charges for the life of the asset.

Accreditation coverage is the moat

What a buyer is really paying for, because they cannot hire their way to it.

This is the single biggest difference between this sector and general contracting. A buyer wanting to enter the connections market has two options: spend years building audited competence across four schemes, or buy a business that already holds them. That choice is why multiples here sit above civils and groundworks.

A business holding all four, able to put one accredited contractor in a single trench delivering four services, is worth materially more than the sum of four single discipline businesses.

The question that decides the price

The question a buyer will ask first

Illustrative revenue mix for a £20m turnover connections business.

Three things follow from this, and they are where most of the negotiation ends up.

It gets normalised. A buyer will look at three or four years and take a sustainable level rather than your best year. If your strongest year was carried by two large adoption payments, expect the earnings to be rebased.

Whether you keep it or pass it on matters. Some businesses retain the adoption value, others pass it to the developer as a discount to win the work. Both are legitimate commercial models and they produce very different margin profiles, so it needs explaining rather than leaving for a buyer to work out.

Owning an adoption vehicle changes everything. A connections business that also holds a licensed network operator is no longer a contractor. It is a contractor plus a regulated income stream with a multi decade life, and it is valued accordingly. That combination is what infrastructure funds are actually buying.

What it is worth

Indicative ranges of adjusted EBITDA for a connections business trading reasonably:

Guide only. The spread inside any one row is wider than the spread between rows, and a business holding an adoption vehicle sits outside this table entirely.

What changes as you scale

Indicative. Turnover is a proxy, the size of the earnings is what moves the multiple.

What drags value down in this sector specifically

1. Accreditation held by one person

If your scheme registration depends on a single named individual’s competence, a buyer is underwriting that person staying. Depth across the engineering team is worth real money here, and thinness is worth real discount.

2. Adoption value doing the heavy lifting

Covered above, and it is the most common cause of a rebased valuation in this sector.

3. Developer concentration

Connections work follows housing and commercial development, so a few large developer relationships can be most of the order book. It is also cyclical in a way that maintenance led utility work is not, which is why buyers pay more for businesses with a maintenance tail.

4. The point of connection risk

Reinforcement requirements, capacity constraints and the time the incumbent operator takes on non contestable elements all sit outside your control but inside your programme. A buyer will look at how that risk is allocated in your contracts, and whether you have been absorbing it.

5. Working capital and retentions

Long programmes, staged applications and adoption payments that arrive on energisation rather than on completion of the physical works. The cash cycle is longer than the job, and a buyer sets the working capital level accordingly.

6. Skills you cannot recruit

Jointers, authorised persons and protection engineers are genuinely scarce. A business with a trained, retained team and apprentices coming through is worth a premium, and one relying on agency labour is not.

Who is buying

Multi service and infrastructure groups assembling capability across all four utilities so they can bid whole site packages rather than single disciplines.

Private equity platforms consolidating accredited contractors, typically buying one business as a platform and then adding regional or disciplinary coverage around it.

International groups entering the UK connections market, for whom accreditation is the entry barrier and acquisition is the only quick route past it.

Infrastructure funds, where there is an adoption vehicle attached, because they are buying a regulated long life income stream rather than a contracting business.

Larger utility contractors buying geography, or a discipline they currently subcontract.

What all of them are paying for is the same thing: accredited capability they cannot quickly build, and a team that can deliver it.

What to fix, and how long it takes

• Separate adoption value in your accounts. Reportable separately, with a three year history. Weeks, and it prevents the single most damaging diligence surprise
• Build accreditation depth. More than one competent person per scheme. Six to twelve months
• Add a scheme. Each one widens the buyer pool and lifts the band. Six to eighteen months
• Grow the maintenance tail. The only income here that recurs without being won again. Two to three years, and the highest value change available
• Reduce developer concentration. Two to three years, because you have to win the replacement work first
• Tighten contract risk allocation on reinforcement and programme. One renewal cycle

What the process looks like

1. Valuation and normalisation. Adoption value separated, sustainable earnings agreed, accreditation coverage documented.
2. A market test. Our 30 day market test establishes whether the appetite exists at that value, with your money back if it does not.
3. Approaching buyers. On and off market, including groups not actively looking who would move for the right accreditation coverage.
4. Offers and heads of terms. Covered on our heads of terms page.
5. Diligence. Here it means accreditation audits, scheme registrations, contract risk allocation, adoption agreements and the sustainability of adoption income.
6. Completion and handover. Scheme registrations have to transfer or be reapplied for, which needs planning rather than discovering.

Where to start

With your earnings properly adjusted, and with adoption value separated out so you know what the business actually earns from contracting. Our adjusted EBITDA calculator is the place to begin, and ranges for adjacent sectors are on the multiples by sector page.

Related reading

• Culture in Blue Collar Acquisitions, and Why It Decides the Deal
• How to Prepare a Construction Business for Sale

More on our guides page.