Engineering Business Valuation
The engineering sector (metals engineering and construction related) is really a sub-set of the manufacturing sector and has experienced a similar decline over the past decade. However the industry has also seen growth fueled by mining industry investment and more recently supported by government infrastructure investment.
The sector has seen a decline in more traditional engineering firms (especially tool engineering) that survived on servicing the core manufacturing sector. However significant growth in advanced and precision engineering has meant the business has expanded into new areas, especially into export-focused markets.
Many engineering firms are geographically focused and growth is constrained by this factor. More innovative firms have developed a different sales and marketing approach into larger and more diverse markets.
Like the manufacturing sector, access to experienced management and a skilled workforce is also likely to influence the growth of some firms, and therefore likely to impact growth and business valuations.
Key Drivers of Engineering Business Valuations
Key Industry Statistics
According to IBISWorld, key statistics for the industry include:
Revenue growth contracted by 4.8% pa for 2012 - 2017, with total revenue of $4bn in 2017.
There was 3,550 business in the sector, with an average revenue per business of $1.1m.
Employee numbers averaged 4.8 FTE per business.
We have collated industry performance statistics based on ABS data and detailed them in a whitepaper, which can be downloaded from the link below.
The valuation of an engineering business is typically driven by key factors below that influence profits and hence business valuations.
Market size and level of repeat clients
Diversity of client base and reliance on key clients
Cost of operations and scale
- Condition of assets
- Use of technology to automate processes
- Level of automated reporting 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 a very low 10%-15% to as high as 30%, depending on the level of local and industry competition, technology and automation and staff productivity.
EBITDA Multiples for most SME-sized engineering 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 - 3.0x
Revenue of $10m - $20m: 2.5x - 4.5x
Revenue greater than $20m: 4.5x - 6.0x
Our Business Valuation Experience
Our engineering business valuation experience has included including valuations for:
Metal products manufacture to residential construction and defense sector
Regionally based general engineering businesses in Geelong, Latrobe Valley and Bendigo
Engineered components manufacture to transport and construction sector
Metal polishing business
Metal tank manufacturing and engineering design
Sheet metal engineering firm in Latrobe Valley