In this update, we look back at year-over-year deal activity, including 2024 for heavy/civil contractors, share examples of recent deals, and consider what makes these companies attractive to buyers.

For this update, heavy/civil contractors encompass several subsectors such as highway, bridge, street construction & material producers, railway, and marine contractors with revenue between $5M – $75M.

While the upward trend may be partially related to a COVID recovery following 2022, we believe the gains are also attributed to a strong outlook for the sector.

We expect heavy/civil contractors to remain very busy in the coming years as the nation’s infrastructure systems continue to need major repairs and upgrades. Ongoing federal, state, and local government funding measures support the work. The steady work heavy/civil contractors enjoy makes them attractive targets for acquisition. While smaller heavy/civil contractors are attractive targets for strategic buyers, who are often larger contractors doing similar or complementary work, we also believe the heavy/civil sector will remain attractive to financial buyers such as private equity investors seeking acquisitions in the industry. The deal examples below are representative of the sector’s activity in 2024. It’s worth noting that these buyers have completed multiple acquisitions over the last two years.

Recent infrastructure contractor acquisitions:

West Rail Construction, a provider of railway construction and maintenance services in the northwestern United States, was acquired in March 2024 by American Track Services, a subsidiary of North American Rail Solutions. The acquisition of West Rail Construction allows American Track Services to expand its coverage into the northwest region, a new service region for the company. North American Rail Solutions, based in Texas, with operations around the US and Canada, is the largest provider of railway design, construction, and maintenance services in North America. North American Rail is a portfolio company of the DFW Capital, a private equity investment firm based on New York, NY. Their affiliate companies include industrial support services, outsourced business services, and healthcare.

The Scruggs Company, a platform company of Construction Partners, Inc. acquired Littlefield Construction Company, a Georgia based roadway and site preparation contractor in January 2024. Construction Partners, Inc., is a strategic buyer who operates across the southeast states as a vertically integrated material producer and contractor. Much of Construction Partners’ work is publicly funded including paving for local roads, highways, airports, and bridges. They also work on private projects doing paving and site development for residential communities and commercial developments.

Aaron Materials, a south Texas based concrete recycler and materials producer was acquired in July 2024 by Heidelberg Materials North America, part of the broader Heidelberg Materials company based in Germany. The asset sale, considered a bolt-on by Heidelberg, increases their market presence for recycled materials in the south Texas region. Heidelberg entered the US market with its acquisition of Lehigh Cement in 1977. Heidelberg went on to make multiple acquisitions in cement and heavy building materials, including the major acquisition of Hanson Materials, which in 2006, was considered the largest producer of construction aggregates.

In examining the deals in greater detail, we see the buyers seeking to increase market share in regions where they currently operate, expand to new geographic regions, and/or add complementary services as part of their strategic growth plans. The sector is also attractive because its pipeline of work is more protected in an economic downturn, compared to other construction sectors such as commercial building, for example. While all contractors who build new construction projects face challenges like increased competition or margin aggression in a downturn, heavy/civil contractors will engage in ongoing maintenance and repair work to keep their operations busy when not working on new construction. Roads, bridges, and railroads still need to be fixed regardless of economic changes.

Heavy/civil contractors are also seeing their business valuation trend upward. In the lower middle market, acquisition targets are often valued based on a multiple of EBITDA (earnings before interest, taxes, depreciation, and amortization). In the construction industry, multiples can vary widely by sub-sector. Our research indicates the heavy/civil subsector has garnered higher multiples relative to similar sized companies in other sub-sectors such as commercial or residential building. For more analysis on current construction valuation and how it differs across industry sub-sectors, be sure to read Construction Industry Valuations and EBITDA Multiples.

The post Construction Sector M&A Update: Heavy Civil Contractors appeared first on BMI Mergers & Acquisitions.

Construction Industry Valuation Multiples: 2017 to 2024

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.

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.

The post Construction Industry Valuations and EBITDA Multiples (Revised December 2024) appeared first on BMI Mergers & Acquisitions.

Philadelphia, PA—BMI Mergers & Acquisitions, a leading advisory firm specializing in sell-side M&A for privately held businesses, is proud to announce the successful sale of Byrne Chiarlone LP, a Chester, PA-based metal fabricator, to Chicago-based Elmsley Capital. BMI was retained by Byrne Chiarlone LP to lead the transaction process.

Byrne Chiarlone LP which consists of William A. Schmidt & Sons, K. Wagner Machine and ERS (Engineered Resin Solutions) has been known for its precision and reliability in metal fabrication, machining and industrial coatings.  For Elmsley Capital, this acquisition strengthens their position in the custom products segment.  Elmsley intends to retain the independence of the Byrne Chiarlone business units and build on its legacy.  David Olson, BMI’s lead advisor on the deal, commented, “We had a lot of interest in Byrne Chiarlone, and we were pleased to complete the transaction with a quality organization like Elmsley Capital.”

Don Byrne, Co-Owner of Byrne Chiarlone LP, praised BMI’s approach: “BMI was very professional. They did a good job marketing, vetting offers, developing buyers who were serious purchasers, and handled the negotiation and due diligence phase very well.”  Co-owner Mike Chiarlone added: “BMI was very experienced in the buy/sell transaction industry. They were very professional, listened to our concerns, and advocated solutions on our behalf.”

The acquisition by Elmsley Capital positions Byrne Chiarlone LP for continued success while ensuring a seamless ownership transition. Elmsley Capital’s experience in operational and financial strategy will support Byrne Chiarlone LP in scaling its capabilities and maintaining its strong industry reputation.

Visit our Sell-Side Advisory page to explore how BMI Mergers & Acquisitions can help your business achieve a successful sale.

The post Byrne Chiarlone LP Acquired by Elmsley Capital appeared first on BMI Mergers & Acquisitions.

Prospective business sellers should take the time to understand the differences before choosing an advisor to assist with the sale of their company. A firm’s title is far less important than its capabilities, and we know some self-described business brokers who are highly skilled at professionally managing lower middle market transactions. However, many others lack the necessary expertise, making it essential to look beyond labels and focus on actual capabilities. The outline below highlights the key differences between business brokers, M&A advisors, and investment bankers, serving as a guide to help identify the best fit for a private company transaction.

Key Differences Between Business Brokers, M&A Advisors, and Investment Bankers

• * There is often significant overlap in the services and skill levels of Business Brokers, M&A Advisors, and Investment Bankers.  Business owners should evaluate their specific needs and match them to the capabilities of the relevant broker or advisory firms.  Revenue and deal size guidelines are general estimates and may vary depending on the firm or type of business.
• ** In 2022, federal legislation (HR 2617) was enacted, significantly exempting brokers and advisors from FINRA licensing requirements for transactions involving companies with less than $250 million in revenue or $25 million in EBITDA. While some M&A advisor brokers have chosen to maintain their licenses, most M&A advisors are no longer FINRA licensed.

Conclusion

While Business Brokers, M&A Advisors, and Investment Bankers all play a role in selling businesses, each brings unique strengths and areas of overlap that suit different circumstances. Success in a business sale depends on aligning your company’s attributes and goals with the expertise and approach of the advisor you choose. A thoughtful match can transform a good deal into an exceptional one.

The post Business Broker vs M&A Advisor vs Investment Banker appeared first on BMI Mergers & Acquisitions.

What is Purchase Price Allocation?

Purchase price allocation is the process of assigning the purchase/sale price of a business to various asset classes for reporting the sale to the IRS and determining the taxes owed. How the price is allocated among these classes determines the overall tax rate, as each class has a different associated tax rate. Notably, goodwill is taxed at a federal capital gains rate of 20%, while non-compete agreements and depreciation recapture are taxed at ordinary income rates of up to 39.6%. These allocations are partly subject to negotiation, and having a basic understanding of PPA can positively impact net proceeds.

IRS Definition

The IRS requires both the buyer and seller to submit Form 8594, which outlines the purchase price allocation. While the buyer and seller do not have to agree, failure to do so invites the IRS to impose its own allocation. Therefore, it is best for both parties to agree on the allocation. The IRS defines seven asset classes, within which the purchase price must be allocated. These are outlined briefly below. For more detailed descriptions, see the IRS instructions for Form 8594.

Class I—Cash and Equivalents:

In most transactions, cash is retained by the seller, so this would usually be zero.

Class II—Securities:

Typically, these remain with the seller, although there may be exceptions.

Class III—Accounts Receivable:

If receivables are sold to the buyer, the amount should be straightforward, subject to doubtful account analysis and working capital adjustments.

Class IV—Inventory:

Consider the current book value versus the value from a physical count at closing. Write-ups will be taxed at ordinary income rates.

Class V—Fixed Assets:

Includes equipment, real estate, vehicles, etc. This, along with Classes VI and VII, is often the most disputed. Buyers want high values here, while sellers prefer lower values.

Class VI—Intangibles:

Includes non-compete agreements, trademarks, trade names, licenses, etc.

Class VII—Goodwill:

Represents going concern value and is taxed as a capital gain.

The Most Common Issue – Depreciation Recapture

Service-based businesses with minimal hard assets rarely face this issue, but for manufacturing or other asset-heavy businesses, depreciation recapture can significantly affect the seller’s tax bill. For example:

Your company has fixed assets with an original value of $3 million, depreciated to a net book value of $400,000. The buyer wants to value these fixed assets at $2.8 million. The difference of $2.4 million is considered depreciation recapture and will be taxed at ordinary income rates. Since capital gains are taxed at 20%, while ordinary income can be taxed up to 39.6%, the tax difference could be as much as $470,000. Therefore, as a seller, you would want to reduce the fixed asset allocation and increase goodwill to save as much of that $470,000 as possible.

However, the buyer prefers higher fixed asset values and lower goodwill values because fixed assets can be depreciated in 5 to 7 years, compared to the 15-year amortization period for goodwill. This creates opposing tax benefits for the buyer and seller.

Other allocations, such as non-compete agreements, can create similar tax discrepancies. However, depreciation recapture generally causes the most significant discord between buyer and seller. (For more details on depreciation recapture, consult BMI, a tax attorney, or your CPA.)

A Simplified Example – Purchase Price Allocation in a Business Sale

As shown, the seller would receive $300,000 less in after-tax proceeds if they accepted the buyer’s allocation.

Real Estate in a Business Sale

Related real estate in a business transaction could also have depreciation recapture. However, this is usually more of a calculation than a negotiation. The ordinary income tax rate on depreciation recapture is capped at 25%, while the gain on the original cost basis is taxed at the capital gains rate.

Negotiating Purchase Price Allocation 

Typically, purchase price allocation is one of the last items discussed before closing. However, PPA should be considered before signing the Letter of Intent (LOI). At the time of an offer, sellers should consult with their tax accountants and M&A advisors to determine their expected tax bill and net proceeds. This is especially important for businesses with significant fixed assets that have been largely depreciated.

By notifying the buyer of the seller’s assumptions in accepting a specific offer, the buyer understands the expectations going forward. Sophisticated buyers, such as larger private equity groups, often make PPA assumptions when drafting the LOI, making early discussions easier. Increasingly, buyers propose that PPA be worked out post-closing, but this should never be accepted.

While PPA should not be a dealbreaker, reasonable expectations and compromise can prevent it from derailing a transaction. By discussing PPA early and maintaining realistic expectations, the negotiations can proceed more smoothly, reducing potential conflicts.

Note: This summary provides a general overview. Prospective sellers should consult an experienced CPA, tax attorney, and M&A advisor.

The post Selling Your Business – Consider Purchase Price Allocation Early in the Negotiations appeared first on BMI Mergers & Acquisitions.

Recognition of Team Dedication and Client Trust

Thomas Kerchner, Managing Director at BMI, commented, “This recognition highlights the dedication and effort our team puts into every transaction. Each BMI advisor is committed to helping clients reach their goals, and it’s an honor to have our work acknowledged in this way.”

Specializing in sell-side advisory for lower middle market businesses, BMI Mergers & Acquisitions has earned a reputation as a trusted partner. Our advisors combine industry knowledge and hands-on experience to guide clients through the M&A process with confidence and clarity, always focused on maximizing value and honoring each client’s goals.

This recognition from Axial wouldn’t be possible without our clients’ trust in us. We’re honored to support these owners as they take steps toward new beginnings.

The post BMI Mergers & Acquisitions Recognized as One of Axial’s Top 25 Lower Middle Market Investment Banks for Q3 2024 appeared first on BMI Mergers & Acquisitions.

Bardot Plastics was founded in 1973 by J. Lee Boucher and has since established itself as a trusted leader in custom injection molding. For over fifty years, Bardot Plastics has upheld its commitment to “making it right the first time” by utilizing engineered and non-engineered resins. Today, the company continues to blend advanced engineering with high-volume production capabilities, earning a reputation for excellence in quality and innovation.

“Bardot Plastics has built an excellent reputation with its customers, largely due to the foundational principles set by Lee Boucher and sustained by the Boucher family over the decades. This acquisition reflects our investment philosophy not only operationally but also culturally in how we conduct business,” said Clark Stapelfeld, President & CEO of New Pendulum Corporation.

Reflecting on the transaction, former owners Rick and Jim Boucher shared, “The entire process was incredible! Working with David and Tom from BMI—from crafting the CIM, meeting potential buyers, receiving LOIs, and ultimately finding the right buyer that aligned with our father’s vision for Bardot Plastics—BMI helped us achieve the ideal exit strategy for our family and our business’s future.”

The post BMI Mergers & Acquisitions Completes Sale of Leading Custom Injection Molding Company, Bardot Plastics, Inc. appeared first on BMI Mergers & Acquisitions.

What is Seller Financing?

Seller financing, or a “seller note,” is where the seller provides a loan to the buyer to cover a portion of the business purchase price. With banks tightening lending, sellers are increasingly asked to step into this role to bridge financing gaps. This approach is common in today’s high-interest, cautious lending environment, especially in deals under $10 million.

Why Consider Seller Notes?

While seller notes come with risks, they can offer strategic benefits:

• Potential for Higher Sale Price: Offering seller financing can attract more buyers and potentially raise the total sale value.
• Tax Deferral: By structuring payments, sellers may defer taxes.
• Operational Advantages: Buyers who are operationally strong but financially limited may still be able to purchase, benefiting from your industry insights and experience.

Common Risks and Mitigation Strategies

Though useful, seller notes have inherent risks. Key risks include:

• Second Position: Seller notes are usually subordinated to bank loans, meaning repayment comes second to the primary lender.
• Unsecured Loans: Prime lenders often secure all available collateral, leaving seller notes unsecured.

To mitigate these risks, consider the following:

• Perform Thorough Due Diligence: Evaluate the buyer’s financial history, operational skills, and any co-investors or partners.
• Request Guarantees: Seek personal guarantees or liens on business assets.
• Regular Financial Reporting: Require quarterly financial updates from the buyer to monitor their financial stability.

When to Avoid Seller Financing

Not every deal is suitable for seller financing. For example, when buyer capital is minimal or their financial strength is questionable, seller financing may introduce unnecessary risk. It’s critical to weigh these factors and consult with M&A advisors and legal experts before proceeding.

Summary

Seller financing has long been a part of private business sales, adapting with economic shifts but remaining a valuable transaction tool. Although seller notes carry significant risks, they can be instrumental in maximizing sale value under the right circumstances. Business owners should carefully assess the benefits and risks to make a well-informed decision that aligns with their financial and strategic goals. For a confidential discussion on your business sale options, reach out to our experienced M&A team.

The post Understanding Seller Financing in Business Sales appeared first on BMI Mergers & Acquisitions.

Originally from Atlanta, GA, Greyson Tavolacci relocated to Raleigh, NC in 2005. Beginning his professional career in commercial real estate brokerage, Greyson assisted in guiding business owners through leasing, acquisition, and asset disposition. His team orchestrated transactions totaling $6B+ in volume. Evolving his career trajectory, Greyson transitioned into Mergers & Acquisitions – Investment Banking. Here, his objective shifted towards empowering business owners to unlock the full potential of their enterprises by employing strategic growth tactics and meticulous exit-planning methodologies. Embodying the ethos of “Start with the end in mind,” Greyson injects an entrepreneurial spirit into every endeavor, navigating challenges with ingenuity and foresight.

With a relational approach at the core of his methodology, Greyson delves deep into understanding his clients’ aspirations and objectives. This holistic comprehension enables him to craft bespoke plans that align with their goals and pave the way for creating their legacy.

Greyson holds a Bachelor of Business Administration degree from the Miller School of Entrepreneurship at East Carolina University. Raleigh, North Carolina, is home base.

His favorite mantra, “The only wealth which you will keep forever is the wealth you given away,” encapsulates his belief in the enduring value of generosity and philanthropy.

For further inquiries, contact Greyson at the Raleigh office at 919-455-3995.

The post Greyson Tavolacci – Raleigh M&A Advisor appeared first on BMI Mergers & Acquisitions.

Private equity played a significant role, adding competitive pressure and driving up valuations for companies with strong AI and analytics capabilities. Cross-border deals were also prominent, consolidating regional players.

Looking ahead, a rebound is expected as buyers seek assets aligned with emerging technologies. Valuations are anticipated to stabilize for innovative companies in AI, big data analytics, and cloud consulting. Expect renewed M&A activity in 2024, with a focus on scalability and innovation.

For a detailed analysis of the 2023 technology services M&A landscape and insights into the 2024 outlook, download our comprehensive market report.

The post 2024 Q1 IT Services Market Report appeared first on BMI Mergers & Acquisitions.