Valuation of an established EC for buyout

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LLSolutions

Senior Member
Location
Long Island, NY
Trying to get a rough idea on how to come to a realistic purchase price or offering for an electrical contracting firm. I've spent hours on Google and everything seems geared to much larger companies. I'm not Emcore if you know what I mean. Talking a small union shop that does mostly A construction with Usually 9 mechanics, driver, bookkeeper, owner/estimator. They have a few "loyal customers" but as I'm sure most know it's still 95% about the price. As far as hard assests: 5 vehicles and roughly 25k in tools/equipment, no real estate. Owner probably nets 250k average year. Gross is much higher but that's mostly because of the union labor. The issues I'm coming up with are : is this flow of business only as good as the guy selling the company? Does the phone stop ringing the second he retires? Do I say screw it and just start to bid against him. I don't have a problem keeping the employee compensation the same but there's no individual contracts with the union employees so if a few walk there goes half the talent. Anyone done this? Is there anyway to do this and have it be somewhat turn key?
 

petersonra

Senior Member
Location
Northern illinois
Occupation
engineer
my suggestion is this.

get tax returns for the last 5 years from the owner. that will tell you what the real net on the business is.

I would not pay much of anything for the first $100,000 of net profit as that is basically your salary for running the business and not really "profit".

After that, maybe 2X the additional average profit for the last 5 years.

You aren't really buying a business so much as you are buying a job.

You will almost certainly lose a substantial part of that business when you take over.

get a lawyer and accountant up front that will guide you through what his business really is. For instance, if the owner is a black lesbian, she may only be getting the business because of minority set asides that you might not qualify for. expect to pay a few thousand dollars for their advice and the advice of a professional business evaluator who can tell you what it might really be worth.
 

Fulthrotl

~~Please excuse the mess. Sig under construction~~
Trying to get a rough idea on how to come to a realistic purchase price or offering for an electrical contracting firm. I've spent hours on Google and everything seems geared to much larger companies. I'm not Emcore if you know what I mean. Talking a small union shop that does mostly A construction with Usually 9 mechanics, driver, bookkeeper, owner/estimator. They have a few "loyal customers" but as I'm sure most know it's still 95% about the price. As far as hard assests: 5 vehicles and roughly 25k in tools/equipment, no real estate. Owner probably nets 250k average year. Gross is much higher but that's mostly because of the union labor. The issues I'm coming up with are : is this flow of business only as good as the guy selling the company? Does the phone stop ringing the second he retires? Do I say screw it and just start to bid against him. I don't have a problem keeping the employee compensation the same but there's no individual contracts with the union employees so if a few walk there goes half the talent. Anyone done this? Is there anyway to do this and have it be somewhat turn key?
25k in tools? 9 man shop?
and 5 shop trucks.
25k in tools isn't that much.

i'm guessing here, but the shop is small enough
that those long term customers probably have a
relationship with the owner, that may very well
disappear.

a primo crew that size can make someone a
pretty fair bit of money. $250k seems reasonable.
i'm assuming this is out of local three?

dunno the particulars of operating in that area,
but you are buying a signatory shop, and that
is something not easily undone.

a spilled can of red ass, and you could find yourself
trolling the book, trying to put together another couple
crews.

sounds like $100k would be the upper limit on
valuation. there are no guarantees here, and
a lot of sideways fugly that could happen easily.
 

CT Tom

Member
Location
Connecticut USA
You need to keep the previous owner involved as part of the transition. Even if wants 100% out, you need a to be able to email/call him for some support as a "consultant". Even if you never need to do so, it is important that the customer base knows it is an option for you. It is very important that the customers feel taken care of.

I just did an asset purchase of an EC who had to close his doors. And while the transition has been very easy, there have been a few who worked with the company due to their relationship with the previous owner, having him as a "consultant" made those few calls/sales easier.

And as stated above, get a business attorney and your accountant/CPA involved early.
 

lakeview100

Member
Location
Chicago, IL
Don't buy out an EC

Don't buy out an EC

Buying out this EC would be a bad deal. The owner/estimator is the reason the company is running. Take him out of the equation, and the music stops.

Is this flow of business only as good as the guy selling the company - YES


Does the phone stop ringing the second he retires? YES, because it's all about bidding jobs, same as any EC.

Do I say screw it and just start to bid against him. YES


 

kwired

Electron manager
Location
NE Nebraska
Are you starting a new business (to you), or adding to an existing business you already run?

That can factor in many ways how this may play out.

Acquiring a competitor may not be wise, acquiring some of their regular clients for your existing business may be well worth pursuing though, this does potentially take that client away from whoever may bite on buying this guy out.
 

mgookin

Senior Member
Location
Fort Myers, FL
Trying to get a rough idea on how to come to a realistic purchase price or offering for an electrical contracting firm. I've spent hours on Google and everything seems geared to much larger companies. I'm not Emcore if you know what I mean. Talking a small union shop that does mostly A construction with Usually 9 mechanics, driver, bookkeeper, owner/estimator. They have a few "loyal customers" but as I'm sure most know it's still 95% about the price. As far as hard assests: 5 vehicles and roughly 25k in tools/equipment, no real estate. Owner probably nets 250k average year. Gross is much higher but that's mostly because of the union labor. The issues I'm coming up with are : is this flow of business only as good as the guy selling the company? Does the phone stop ringing the second he retires? Do I say screw it and just start to bid against him. I don't have a problem keeping the employee compensation the same but there's no individual contracts with the union employees so if a few walk there goes half the talent. Anyone done this? Is there anyway to do this and have it be somewhat turn key?
I know of a long established and infinitely capable EC around here who did just what you're speaking of. I will not mention his name.

Another EC came along and bought his company just as you are discussing.

The now former owner stays on in the form of coming to the office about once per week and keeping a cell phone on him. He will take a call and speak to a customer or prospective customer for as long as necessary to continue and further the business.

It works very well.

As to those saying $25k in tools is not much, that may be current (used) value. That could be $100k+ new.

If I were considering this deal I would want to know:
Does this company have just a few clients such as industrial where the same guys are on the same job in perpetuity?
Or is this an established service company well known in the area?
Or is it electrical construction, and again, is it well known in the area?
Would the current owner mind if you chatted with his customers to see if they would stay on during the transition barring any unexpected events?
 

LLSolutions

Senior Member
Location
Long Island, NY
Keeping the existing owner on board in a diminished role for a few years would probably be part of the plan. The 25k for tools was a ball park number on what stuff would cost to buy used. It's a handful of loyal existing customers. Two or three of them are probably 50% of the business.
 

LLSolutions

Senior Member
Location
Long Island, NY
Don't buy out an EC

Don't buy out an EC

Buying out this EC would be a bad deal. The owner/estimator is the reason the company is running. Take him out of the equation, and the music stops.

Is this flow of business only as good as the guy selling the company - YES

Does the phone stop ringing the second he retires? YES, because it's all about bidding jobs, same as any EC.

Do I say screw it and just start to bid against him. YES


Update_ Did just that!
 
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