As a result, one of the most important contributors to the
value of your business is your ability to retain key personnel
– at the C-suite level as well as PMs, estimators, and other
employees who are critical to your company’s day-to-day
operations. These professionals are your company’s most
valuable assets, and potential buyers may want to retain
many of these assets after they’ve purchased your company.
To help retain your best people in the event of a sale, consider
adding incentives (e.g., deferred compensation packages) or
legal arrangements (e.g., noncompete agreements). Many
sale agreements will require something similar, so it’s best to
have such programs in place well in advance of a sale. There
have even been transactions in which the buyer reduced the
price paid for a company to provide minority interests to key
members of management in order to retain these employees
after the sale.
Contractors that specialize in certain geographic areas or
types of construction (or both) could find themselves more
sought-after by buyers. For example, if your market is one
with a strong forecasted need for hospitals and your company has a demonstrated track record of building healthcare
facilities, then that will help add value to your business.
Buyers will look closely at a seller’s current and projected
backlog. The quality and quantity of work in your pipeline can
help demonstrate to outside investors that the company has
strong current cash flow and good prospects for long-term
profitability. Additionally, clearly identified sources of new
contracts and your company’s success rate in winning new
business are key to the value buyers will be willing to pay.
If you’re considering selling the business, thoroughly review
your fixed asset inventory and clean house before inviting buyers to examine your company. If your construction
equipment is leased, then that expense won’t factor into
your valuation; but, if your company owns the equipment,
it’s time to think about why. Is all of the equipment used
on a regular basis, or is much of it sitting around? Consider
liquidating excess equipment. In many cases you’ll be able
to get more for it on the open market than through a buyer
paying for it as part of the transaction.
Construction company owners also often keep personal
assets (e.g., personal vehicles, unrelated property and
equipment, mementos, and even artwork) in the business.
While there may be reasons for doing this under everyday
circumstances, it’s important to remove these assets from
the company if you’re anticipating a transaction.
PREPARING FOR THE TRANSACTION
Although selling a company is exciting, it’s also fraught with
risk for contractors that are unprepared to make an informed
decision if and when a buyer comes knocking. That’s where
due diligence comes in – the principal means by which
both buyers and sellers prepare for, assess, and facilitate a
It doesn’t stop there. Whether you’re on the buy or sell side
of a transaction, it’s critical to not only conduct thorough due
diligence, but to also pay close attention to the many issues
related to completing a successful transaction.
Being ready for a transaction means doing enough work in
advance to limit and manage surprises during the review
and negotiation process. Let’s take a closer look at how to
prepare for and carry out a successful transaction.
PREPARING FOR DUE DILIGENCE
Due diligence – the detailed analysis of a business’s operations, management, and all related financial information – is
always a two-way street. For buyers and sellers, the M&A
process is expensive, time consuming, and risky. Therefore,
smart buyers prefer to negotiate with smart sellers.
Well-informed buyers can efficiently analyze a potential
acquisition’s business risk and opportunity. They can pursue
attractive targets more confidently and aggressively, and
negotiate transaction terms and conditions more quickly and
with more certainty. Alternatively, they can quickly reject a
target that isn’t worth pursuing. While disappointing in the
short term, this decision ultimately benefits both parties.
In turn, smart sellers understand that a well-managed due
• Positively reflects on the capability of a company’s
• Helps reduce disruption to the business’s normal
• Helps maintain confidentiality (internally and externally)
regarding a potential transaction, and
• Creates leverage for a seller to negotiate a better price,
deal terms, and other considerations.