What is a concrete contractor worth?

Two concrete contractors can report the same revenue and be worth different amounts, because revenue in this trade is a pile of finished projects rather than a book of orders that is certain to repeat. A buyer is not paying for last year’s pours. A buyer is paying for the likelihood that next season’s pours arrive on similar terms: structural work won through general contractors and developers, flatwork sold straight to homeowners, and the crews and trucks that deliver both. Working out what a concrete contractor is worth starts with sorting out which of those revenue streams is real, how much of it depends on the person selling, and what it costs to keep the equipment working. The rest is arithmetic for a valuator, not a rule of thumb.

How a buyer reads the revenue

A concrete contractor earns through projects, so a buyer reads the income statement by type of job before reading it by year. Structural pours subcontracted to general contractors and developers and residential flatwork sold direct can differ in job size, in how many relationships carry the work and in how leads arrive, so ask how much of the revenue comes from each. Whether a contractor leans hard on one type or has a genuine mix changes what a buyer is relying on, so ask for several years of revenue split by customer and by job type.

In Ontario there is a compliance angle to the subcontract side. WSIB policy requires a principal that directly retains a contractor for construction work to obtain a clearance certificate confirming the contractor is in good standing with the WSIB, with exceptions for certain home-renovation arrangements between householders and contractors. A subcontractor’s standing with the WSIB is therefore something a general contractor that retains it directly has to confirm, so a buyer can ask how clearances have been handled on past jobs.

Backlog is evidence, not an asset

Backlog is worth asking about in a project business. Signed work with named customers, start dates and payment terms is evidence that next season has revenue. A list of verbal awards and bids still out is evidence of effort. A buyer can also ask who won each job and who will be on site delivering it. Backlog the owner won personally, on the strength of a relationship with one project manager, may depend on that relationship continuing, while backlog won through a documented bid process may be easier for a new owner to repeat.

What gets recast

Recasting starts with add-backs such as owner pay above what a hired manager would cost, and personal vehicles and expenses run through the company. It can then turn to what is particular to this trade. One item is equipment. If mixer trucks, pumps and forming systems have been run past their useful life and replaced late, reported profit may understate the cost of staying in business, so a buyer can charge a realistic replacement cycle against earnings. Another is warranty and call-back work. If repairs on past pours were absorbed in some years and ignored in others, a buyer can smooth them out. A third is the owner’s own labour. If the owner is the estimator, the salesperson and the best finisher, each role can be priced at what a replacement would cost. BDC’s guidance for sellers notes that buyers ask for historic and interim financial statements, projections and tax returns, so the recast has to reconcile to those records.

What gets discounted

Risks a buyer may weigh against the price include:

• Backlog and repeat work concentrated in one or two general contractors whose relationship sits with the owner personally
• No ability to pour in cold weather, which shortens the part of the year in which revenue can be earned
• A pattern of cracking or settling complaints on past structural work, especially where claims are still open
• Mixer and pump trucks that are all approaching replacement at around the same time
• Finishing skill held by one or two people, with no one behind them

Fleet, safety record and supplier terms

A concrete contractor with its own mixer and pump capacity may control its schedule and margin in a way one that rents does not, but a buyer can only value that once the age and condition of the vehicles are known. Ownership also brings a record. Ontario’s page on the commercial vehicle operator’s registration, or CVOR, says a carrier’s safety rating is available to the public and can affect its ability to promote its business and attract customers, so a buyer can ask about the fleet’s safety history alongside its mechanical condition. Ready-mix supply is the other dependency. Account terms and pricing negotiated by the owner may need to be renegotiated when ownership changes, so a buyer can ask the supplier about that before closing.

Who is doing the pricing

Who the buyer is can change what a company is worth to them. Ask whether a prospective buyer is an individual operator, another concrete contractor, a general contractor or a business assembling several contractors, because what each would be paying for may differ. A credentialed business valuator, such as a Chartered Business Valuator, is one credentialed professional a buyer or seller can ask to turn these considerations into a figure for a specific company, and what is my business worth explains the general method.