EBITDA & Valuation Multiples for Construction Companies – Q3 2023

Our research team recently conducted a study on the state of valuation multiples for private construction companies entering into an M&A process as of Q3 2023. The study aggregated data from M&A and investment banking reports and was supplemented by interviews with M&A advisors, private equity GPs, and other investors. (Sources)

The results of our study are shown in the tables below, which list EBITDA and revenue multiples for construction companies. The data is broken down by construction specialty and level of earnings. 

2023 Private Construction Company EBITDA Multiples 

2023 Private Construction Company Revenue Multiples 

Below is a high-level analysis of the M&A market as of Q3 2023, which provides context for the figures listed above in addition to key takeaways for business owners seeking to begin the M&A process. 

The Current State of the M&A Market for Construction Companies

Of the approximately 3.7 million construction companies active in the U.S, the sector saw an average growth in enterprise value of 6% over the last calendar year, resulting in a slight growth in industry-wide average EBITDA multiples: 9-11x. The primary force behind this growth is smaller contractors—who averaged a growth rate of 25%. The influence of small companies in construction M&A is vastly different from tech-related industries, like SaaS, which saw most of its industry-wide growth from enterprise companies.

If your construction company is a small business and seeking an acquisition in the next 6-12 months, you will be faced with few unique hurdles: 

• Sub-$25M construction companies have a higher degree of owner dependance, making them less appealing to buyers
• Specialized contract types (e.g., 3P, design-build) mean there will likely be extra diligence conducted by industry experts brought in by the acquirer
• Construction companies have more moving parts to consider within their everyday operations – e.g., subcontractor relationships and disparate material suppliers – compared to other industries, which can attract lower multiples than traditional services businesses due to investor conservatism

Considering these factors, construction companies that prioritize documentation and delegation are more likely to earn a higher multiple. Also, as in other M&A sectors, construction firms that specialize in a niche and are known to be the leader in that space will command higher valuations. 

PE Firms Are More Likely to Offer Better Deals for Small Companies

The disproportionate growth of small construction companies over the last several years will likely make them a prime target for PE firms, since the goal of private equity is to grow a company’s value over time before reselling it. Larger construction companies, on the other hand, are more likely to benefit from working with a strategic buyer since PE will be less interested in them.

(Related: Selling to Private Equity vs a Strategic Buyer: An Analysis)

Reducing Owner Dependance Can Result in Higher Multiples 

Sellers are less likely to express interest in a company that depends on the input of a single person who will not be there anymore once the deal has been closed. Companies in this situation should take steps to decrease the company’s dependence on their owner. 

• Hire a capable management team 
• Delegate important tasks where possible
• Document key information 

Having the Right Team Will Ensure the Best Possible Deal 

Business owners often make the mistake of attempting to use their own in-house team to navigate the tricky world of M&A transactions, but this often leaves blind spots that result in missed opportunities and losses that might have been avoided using an outside partner. 

The best course of action is to start a deal process with an M&A firm experienced in your industry.

Construction company owners, particularly with smaller companies, are in a unique position to capitalize on their last few years’ growth today. However, the uncertainty that comes with a turbulent market combined with the many factors influencing the sale of construction firms makes it difficult to know what to do next.

If you have any questions, I’m available to chat. As an owner who has sold multiple companies, I’m happy to share my experience with other owners. You can reach me via the contact information provided below or using the contact page of this website.