Exit Strategies to Maximize the Sale Value of Your Construction Business

The construction and building trades sectors today are dominated by founder-led businesses. In the U.S. alone, 70-80% of construction companies are still run by their founders or their family. And, a significant number of these owners are nearing retirement age, with the average age of construction business owners over 55. These statistics suggest an impending wave of business transitions, whether through sales, mergers, or passing the company down to the next generation. 

In the face of these demographic, if you plan to sell your business in the next few years, you can be in a better position to maximize your sale price if you focus on the following:

Streamlining key operations
Succession Planning
Demonstrating achievable growth potential

Through our experience working with Construction trades, there exists a multitude of specific ‘exit-related’ challenges for which there are solutions that we are uniquely qualified to address:

1. Improving Financial and Operational Performance: 

Maximizing your sale price requires you to optimize the financial health of your business and streamline operations to run more efficiently and effectively by focusing on: 

Operational Efficiency: Identify inefficiencies and target high value process improvements to prioritize.
Reducing operational costs and improving margins. This can be done by automating payroll, inventory management, and project management which can lead to a 10-20% increase in profitability, making the company more attractive to potential buyers.

Cost Optimization Initiatives: This goes beyond simple cost cutting. You should look to renegotiating contracts with suppliers and improve your procurement processes. These improvements will achieve long-term efficiencies and set your business up to scale operations effectively without sacrificing quality or performance. Cost Optimization could lead to a 5-10% improvement in operational efficiency.
Enhancing Financial Reporting: Ensure your financial records are up to date, organized, and aligned with industry standards. Accuracy and transparency of financial reporting is critical for potential buyers and demonstrates financial health leading to a higher sale price.

How do these recommendations improve your sale price?

The combined effect of improving financial and operational performance can increase your company’s EBITDA (Earnings Before Interest Taxes Depreciation and Amortization) by a whopping 35%!

For example: If your company’s baseline EBITDA was $10 million, you can increase that baseline to $13.5 million with an ‘exit multiplier’ of 4x earnings (EBITDA). This multiplier is typical for construction company deals, and in this instance would increase your selling price from $40 million up to $54 million, based on these improvements alone!

2. Strategic Planning and Business Transition: 

Preparing for a smooth transition is vital if you are nearing retirement. This requires:

Succession Planning: Develop a plan to transition leadership roles to either the next generation, key employees, or external buyers, to ensure continuity of operations and stability post-sale. By implementing strategic succession planning, you retain key talent while removing the single source of failure (yourself), thus increasing the operational maturity of your business. This involves formalizing leadership roles, getting the ‘right seats on the bus’, creating a robust management structure, and delegating key responsibilities to other senior staff. These steps will not only ensure business continuity but also make the company more attractive to buyers who prefer to see a mature operation that can thrive independently without your day-to-day involvement.

Management Development: A key selling point for many buyers is the assurance that your company can continue operating successfully after the sale. This means developing and stabilizing your management team, ensuring that the new leadership is prepared to maintain business operations, and even grow post-sale. Buyers are often willing to pay a premium for companies with well-established and aligned leadership teams.
Documenting Internal Processes: If you don’t have them yet, formalize and document key internal processes (such as HR, CRM, Accounting, Procurement and Project Management). This creates consistency, reliability and predictability of operations, which is also highly valued by buyers. This process alone can enhance your company’s valuation by as much as 15-20%.

These transition planning recommendations create transparency for potential buyers that mitigate the very real risk of your sale not happening. Buyers who have a high degree of comfort and confidence with your company’s continued viability and enhanced growth prospects, will have an easier time justifying a higher sale price.

Conclusion: 

Is it time to take an objective look at your business to discover what should be improved to increase the sale price when the time comes? Through operational efficiencies and strategic planning, you can begin to identify and solve typical challenges before they inhibit your sale price.

Need Help?

We know your industry and we excel at business performance improvement! Our business consulting team is skilled at identifying and solving key business performance challenges and transitioning your workforce through a collaborative approach. We work together with you to build the momentum for change and early adoption of best practices. Get started now to lay the groundwork for a sale, so that you can realize the true value of your business when the time is right to sell.

Exit Strategies to Maximize the Sale Value of Your Construction Business

1. Improving Financial and Operational Performance:

2. Strategic Planning and Business Transition:

Conclusion:

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