Business valuation of civil engineering construction firms
Valuing a civil engineering firm in the heavy construction industry? Some sector statistics to consider:
There are over 32,600 establishments in this highly competitive industry in the USA alone. Together these companies generate about $256.3 billion in annual revenues. And the average civil engineering firm makes some $7.8 million in sales per year employing about 30 professional and administrative staff. In addition, the average payroll is just under $57,000 while the industry sector as a whole employs about 961,000.
The civil engineering construction industry took a beating during the Great Recession with a number of companies falling by 17% from 2007. For example, the employment shrank by 7.9% during the same period. However, despite this downturn, the total employment grew some 9.7% and the average per civil engineering company rose from 23 to almost 30. Why? Because companies in the sector were able to use their manpower more efficiently with the revenue per employee rising from $173,000 in 2007 to $267,000 in 2012.
Business valuation methods for civil engineering construction firms
Successful civil engineering firms sell often. So you can check the recent business sale prices to estimate what your firm is worth on the market. Importantly, valuation multiples derived from such market comparables are a common way to determine your firm’s fair market value.
There are a number of valuation multiples to choose from. Examples include those based on the firm’s revenues, profits, EBITDA, cash flow, or business assets.
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Example – valuation of a civil engineering firm using multiples
To show how you can estimate the fair market value of a civil engineering firm, let’s consider a typical company in this sector with the recent annual revenue of $8 million.
Firstly, we will apply a set of gross revenue-based valuation multiples to come up with this firm’s market value:
| Multiple | Multiple value | Business value ($ thousand) |
|---|---|---|
| High | 1.61 | $12,864 |
| Low | 0.55 | $4,401 |
| Median | 0.84 | $6,714 |
| Average | 1.09 | $8,690 |
| Average Business Value | $8,167 | |
Secondly, note the business valuation results above. All of them use the business enterprise value basis. In other words, they include all business tangible and intangible assets and long-term debt, if any.
Going beyond the market comps
If you open a professional business valuation report, you will note that there are multiple methods used. Moreover, all business valuation standards such as the USPAP and AICPA SSVS No 1, require that you use all three approaches to business valuation: asset, income, and market. So omitting the methods from your analysis is a no-no, unless you have a good reason to do this.
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