© 2017 by Exit Value Advisers Pty Ltd. Proudly created with Wix.com

  • White LinkedIn Icon
  • Twitter
  • Exit Value Advisers
  • White YouTube Icon

Based in Melbourne (Victoria) we deliver business valuations all over Australia using expert business valuers and resources that allow us to work remotely.

We have completed:

Contact Us

L3/162 Collins St, Melbourne, 3000

0421 069 717

m.williams@exitvalue.com.au 

Construction Business Valuation

Construction business valuations need to consider issues that tend to be particular to this industry:

  • Projects and revenue can vary considerably from one period to the next.

  • Each project has a fixed life and it doesn't necessarily lead to ongoing projects.

  • The workforce can be transient and hence key skills not always retained between projects.

  • Projects have cash flow demands in mobilising and de-mobilising for most projects which can impact ongoing EBITDA results.

Despite these challenges a construction industry business valuation follows the same business valuation process as any other industry, although we must take into account the cash flow implications of revenue that often comes from one-off projects.

The industry is typically divided into commercial and residential construction and there is a growing number of service-based businesses that support the construction sector.  It is consistently in the top 3 industry sectors for business revenue for most states and recently has seen the highest growth rates.

Most construction business valuations will attract lower EBITDA multiples than other industries, however many construction businesses have a large size in terms of revenue and this can often increase the EBITDA multiple in a business valuation.

Key Drivers of Construction Business Valuations

The valuation of an construction industry business is typically driven by key factors below that influence profits and hence business valuations. 

These include:

  • Number and length of projects

  • Mobilisation costs

  • Workforce size - both permanent and casual

  • Diversity of client base and reliance on key developers

  • Use of technology to automate management processes and integration with key management functions.

  • Staff structure and documentation of roles and KPI's
  • Certification to relevant quality, OH&S and environmental standards.

EBITDA Margins range from less than 10% to as high as 30%, depending on the size of the business, industry competition, technology and automation and staff productivity.

EBITDA Multiples for most construction industry companies will vary considerably across sub-sectors, and will be heavily influenced by size and scale.  Typical EBITDA Multiple ranges we have observed are:

  • Revenue of $1m - $10m: 1.5x - 2.5x

  • Revenue of $10m - $20m: 2.5x - 4.0x

  • Revenue greater than $20m: 4.0x - 5.0x

Key Industry Statistics

According to IBISWorld, key statistics for the industries include:

  • Total industry revenue increased by 2.9% pa for 2012 - 2017, with total revenue of $394bn in 2017.  Average business revenue was $1.1m

  • Forecast industry revenue is expected to contract 0.4% in 2018 allong with a reduction in the number of businesses.

  • Construction industry services revenue is expected to contract by 1 - 2% pa for 2014 - 2019 with reduced construction demand.

  • However some service sectors such as air conditioning and heating services and metal cladding, waterproofing and scaffolding services are expected to grow 0.7% - 1.2% pa for 2014 - 2019.

 

We have collated industry performance statistics based on ABS data and detailed them in a whitepaper, which can be downloaded from the link below.

What Makes a Business Highly Valuable?

SME Performance Whitepaper

Our Business Valuation Experience

Our construction business valuation experience has included including valuations for:

  • Residential builders in Melbourne and Sydney

  • Scaffolding services to building industry

  • Land sales management

  • Commercial plumbing service to medium-sized apartment buildings

  • Project management and construction of high-end residential building renovations and modifications.

  • Modular house and building construction in Melbourne and in Latrobe Valley

  • Software to residential builders and developers