What is an elevator service company worth?

An owner who asks what an elevator service company is worth is really asking what a buyer can rely on after the sale. The vans, tools and test equipment can be bought. A contract book, a roster of certified mechanics and the ability to service the devices in it are harder to assemble, so they are the parts to examine first. This guide describes the mechanism: what a buyer weighs, what gets discounted and why two similar-looking companies can price differently. It gives no numbers, because a price depends on the specific book and the specific deal, and it is not a valuation. A valuation needs the real records and a qualified professional. BDC, for one, asks a purchase-loan applicant for the agreed price and how it was determined, and the Canada Small Business Financing Program guidelines list goodwill, where it is part of a going concern purchase, as an intangible asset a term loan can finance.

The contract book is the asset

A service company sells continuing work, so a first question to ask is how much of the revenue is covered by maintenance agreements rather than one-off repairs. Look past the total to the detail: how many months each agreement still has to run, how renewal is handled, which building owners or property managers sit behind the largest agreements, and whether those relationships are with the company or with the owner personally. Ask whether your book is long, spread across many buildings and held at the company level, or rests on a few agreements; that difference is the one to understand before any price is discussed. Customer concentration and recurring revenue are the terms to read first.

People who hold the certifications

The Technical Standards and Safety Authority, Ontario’s safety regulator, lists elevating device licensing among its programs, and its change-of-ownership page states that licences are not transferable and that the new owner must apply. Quebec’s Régie du bâtiment du Québec runs its own licensing and publishes a licence holders’ repertory, so the body and the rules depend on the province. Whatever your province’s rules, the practical point is to check, not assume, whether licences move to a new owner; in Ontario the TSSA says they do not. If the certified mechanics are few, or if one person holds the key qualifications, ask what happens to the business if that person leaves. Also ask whether the owner personally does the certified work. If the owner is the main mechanic, a buyer has to replace that person, and the recast earnings should carry the cost of doing so.

Manufacturer access and the serviced fleet

Ask what share of the serviced devices depends on a manufacturer’s proprietary parts, diagnostic software or controls, and whether the company’s access to them is written down or informal. If access can be withdrawn or does not pass to a new owner, the part of the book that relies on it is worth less to the buyer. The age of the devices and of the company’s own diagnostic and testing equipment matters too, because equipment that is due for replacement is a cost the buyer takes on.

What gets discounted

Several features are worth checking before you sell, because each bears on how much revenue is secure after the sale and a buyer may ask about it. Agreements that are close to the end of their term without a clear sign they will renew are one. Mechanics’ certifications concentrated in too few people are another. A large share of the fleet that depends on a manufacturer’s locked parts or software is a third. Each is a question of how much of the revenue is secure after the sale, and each can be improved before you sell by documenting, renewing and training, rather than argued about during negotiation.

How earnings get recast

A recast starts from reported profit. It adds back owner expenses that a new owner would not carry and adjusts for pay that is out of line with the market, such as an owner-mechanic paid below or above what a replacement would cost. Add-backs are adjustments for one-time items and personal costs, and each needs paperwork to support it. The recast also asks whether callout and repair revenue was unusually high or low in the period, and whether any agreement was priced below cost to win the building.

• Contract book: remaining term, renewal history, spread across buildings and how many sit with the company rather than the owner
• Mechanic bench: who holds which certifications, how long each has stayed and what happens if one leaves
• Manufacturer access: which devices need proprietary parts or software and whether that access can be assigned
• Equipment condition: diagnostic and test equipment and vehicles due for replacement
• Reported profit: owner pay, add-backs and any agreements priced below cost

Why similar companies can look different to a buyer

Two companies with the same revenue can look very different to a buyer because of the items above: one holds agreements that run for years across many buildings and employs several certified mechanics, while the other relies on a few agreements, a single qualified owner and one manufacturer’s locked system. The second leaves more open questions about how much revenue is secure after a sale, and those are the questions to answer with documents before you go to market.