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Selling a construction business

Although there are many businesses on the market at any given time, it still remains an uncommon occurrence in the career of any individual entrepreneur. It’s often a once in a lifetime event, and few experience it more than a handful of times.

Whether your construction business is flying high and it’s time to cash in, or times are much tougher and it’s time to hand over the reins, in any situation you’ll want to ensure you command - and take home - the best possible price for your company.

That’s what makes it so important to ensure to get your timing, pricing, marketing and negotiations absolutely right.

The best time to sell

The best time to sell a construction business is, naturally, when it can command the highest price. Companies are worth more when they have been trading well and increasing profit in recent years, as well as demonstrating the potential for further growth.

External factors can also affect the price, such as low interest rates, which mean a buyer has easier access to finance, and the number of rival businesses on the market.

In other cases, you may have your own reasons for selling, such as impending retirement, or the need to free up some cash, or maybe you just don’t enjoy turning up to work in the mornings any more.

Whatever has led to your decision to sell, try to avoid a rushed sale. With time on your side, you can market to a wider number of buyers, negotiate with more strength, and arrange your financial affairs in the most tax efficient way.

Finding a buyer

When there’s only one interested buyer, they can have the upper hand in negotiations. But if you have competing buyers, things swing in your favour and that can only increase the potential price. It works in your favour to stir up maximum interest.

Fortunately, construction businesses are highly saleable right now, as mergers and acquisitions are the easiest method of achieving growth in the industry. Your business will attract other firms who could be:

-       Looking to expand into your geographical region

-       Planning to offer the services you specialise in

-       Acquiring plant machinery…

-       ...or qualified and experienced staff

-       Or hoping to quickly grow in size

Although it’s possible to do this organically, it’s far easier to simply purchase an existing company. If you’re achieving another firm’s objectives, you could be prime target.

The most effective method of finding such buyers is to enlist the services of a specialist broker. A good broker already has contacts, knows exactly where to look, who to speak to, and has the experience to market a proposition to maximum effect.

Valuing your business

The most common way of pricing a construction business is to multiply the EBITDA by an agreed multiplier.

You can command a higher price by demonstrating:

-       A history of strong profits and growth

-       Specialist expertise and capabilities of staff

-       Your company’s reputation

-       Frequency of repeat customer orders and strong supplier relationships

-       Prime location, plus number of local competitors

-       Valuable assets, premises, machinery and vehicles

-       Up-to-date licences, insurance, no overdue debtors or creditors and no pending legal situations

-       Your willingness to stay with the business in some capacity through a transitional period

These are all good indicators that your business is low-risk, high-return. They are the ingredients of an attractive proposition to a potential buyer.

The sales process

Before you can embark upon a successful sales process, it’s important to first define your personal aims and objectives. For some it’s purely price, while some want to secure the company’s legacy for the future. Each individual has their own motivations.

With your goals decided, it’s highly recommended that you enlist the assistance of professional advisors. Selling a business is a long and labour-intensive process and can easily distract a business owner from their day-to-day work. It’s also likely to be a whole new skills set than you may already have in your arsenal, and it’s quicker to hire a pro than to start learning now.

After marketing your business, you’ll be able to narrow interest down to genuinely interested buyers who will want to put you through the due diligence process. This involves them poring over your company in the finest of detail. They’ll ask a lot of questions, so it’s best to prepare all your legal, financial and other documents in advance. The more a buyer knows, the more confident they will be to sanction a purchase.

Once due diligence is completed, you’ll be able to negotiate a final price. There’s more to this than the overall, headline figure. You should receive additional compensation if you’re staying on to advise after the sale, and if the buyer would prefer to set up a payment structure, in installments or shares, then you should check with your finance team that still presents good value and doesn’t jeopardise any tax planning you’ve put in place.

It often takes more than six months to sell a construction business, and it’s never too early to begin planning. Some businesses spend years putting together a lean, profitable few years of trading to make the financial records looking as appealing as possible.

As an individual, you should also be working with your financial advisor from the very first step to ensure that any money earned through the sale can be taken in a tax-efficient method. All too often, entrepreneurs sell a business only to then learn that the tax office wants to take a sizeable portion. This can even cause hopeful retirees to top up their pension pots by staying in work.

Whatever stage of the sales process you’re at, whether you’ve yet to begin or you’re in the thick of it, it’s never too late - or early - to contact BTG Corporate Finance for specialist advice and a free consultation. It’s our job to ensure your sales process is a pain-free and rewarding as possible.

Martin Kennedy

About the author

Martin Kennedy

Director

Meet our Team of Experts

Martin has nearly 20 years’ corporate finance experience specialising in advising owner managed businesses. Martin has considerable experience advising on business sales as well as management buy-outs and acquisitions across a wide range of sectors and deal sizes.

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