While several business valuation methods exist, EBITDA multiples are frequently used to determine approximate business value in a sale transaction. Multiples can vary widely by industry and within industry segments, and the construction industry is no different. The data and experience tell us that only premium-quality businesses are achieving extraordinary valuations in the construction industry. Following is data for a sampling of construction industry transactions from companies sold between 2017 and November 2024 with at least $5 million in revenue.
Construction Industry Valuation Multiples: 2017 to 2024
| Construction Industry | EBITDA Range | EBITDA Multiple Median | EBITDA Multiple Mean | EBITDA Multiple 25th-90th Percentile Range | Median Revenue |
|---|---|---|---|---|---|
| Electrical Construction | $0.3 Mil – $8.3 Mil | 4.1x | 5.0x | 2.9x – 8.7x | $11.2 Million |
| Commercial & Heavy Construction | $0.6 Mil – $3.7 Mil | 3.2x | 3.2x | 1.5x – 9.3x | $9.6 Million |
| Misc. Construction Trades | $0.3 Mil – $8.0 Mil | 3.6x | 4.5x | 2.8x – 8.1x | $7.9 Million |
| HVAC & Plumbing | $0.5 Mil – $4.0 Mil | 4.6x | 5.1x | 3.7x – 7.9x | $7.2 Million |
| Residential Home Construction | $0.3 Mil – $3.0 Mil | 3.1x | 3.3x | 2.6x – 4.3x | $10.3 Million |
| All Construction | $0.3 Mil – $8.3 Mil | 3.8x | 4.4x | 2.8x – 8.3x | $8.1 Million |
Valuation Calculation
EBITDA = Earnings before Interest, Taxes, Depreciation, and Amortization. Example value calculation using Mean Multiple: Electrical Contractor with $1,000,000 of EBITDA may have a value of $5.0 million based on the mean multiple calculation ($1,000,000 x 5.0). Actual offers from buyers would be expected to fall within the 25-90 percentile ranges with higher EBITDA businesses receiving the highest offer multiples. Many factors affect ultimate value and higher EBITDA businesses with high qualitative factors would be expected to generate the highest offers.
Larger Business Have Higher Relative Valuations
As noted above, larger businesses generally sell for higher multiples, as shown in this multi-year analysis of private equity-acquired electrical contractor companies from 2012 through 2024.
| Mean Revenue | Mean EBITDA Multiple |
|---|---|
| $21 Million | 5.0x |
| $33 Million | 6.7x |
| $95 Million | 7.8x |
Sub-Sectors Make a Difference
While larger companies have higher relative valuations, the specific construction sub-sector plays a big part. Note the difference between Electrical Contractors and Commercial & Heavy Construction. The mean EBITDA multiple for Commercial is 3.2x while Electrical is 5.0X. With all else being equal, if an electrical contractor and commercial builder were generating $1.5 million in EBITDA business, the Electrical contractor would be valued at $2.7 million more than the commercial contractor.
Qualitative Factors Matter
HVAC has been a hot sector over the past 7 years and thus has high relative valuations. However, qualitative factors can make a big difference even within a sector. For example, an HVAC business primarily involved in new construction projects might sell at 4x EBITDA. In contrast, a company of similar size with a significant service and replacement component might sell for 6x EBITDA. On a $3 million EBITDA business, there is a difference of $6 million in value for the same size companies.
With this summary, we have presented an overview of how the business sale market works in the construction industry. Like any industry, business sale valuations in the construction industry are affected by many factors, including subsectors, size, management team, customer base, capital expenditure requirements, and other qualitative factors. Prospective sellers should consult a knowledgeable advisor with construction industry experience to determine the value of their business and what they might do to position themselves in the market better.
Explore how BMI Mergers & Acquisitions can help position your construction business for a successful sale. Visit our Construction & Building Services Industry page to learn more.