Diligencing construction company with lots of equipment

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May 24, 2023

by a searcher from University of California, Berkeley - Haas School of Business in Portland, OR, USA

Hello community,

I'm in early talks with a construction company that has a relatively high value and volume of equipment. Anyone have experience in this space that would be willing to share tips?

Thanks,
Paul

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commentor profile
Reply by a professional
from Tulane University in Portland, ME, USA
Many good answers above, as a due diligence provider I'll offer some tips from the financial perspective:

1) As some said, look at spend on equipment recently

2) the other thing to pay close attention to for CAPEX intensive businesses is repairs and maintenance expense. By looking at this trend, you can get a good sense of if they are having an increasing number of issues with the equipment.

I3) I also look carefully at the in service dates of the fixed assets of the business to see where they are in their lifespan and if I can anticipate needing.

4) may be worth getting a fair value report from a specialist if this is key to the deal

5) build some cushion for CAPEX in your model, better to be conservative!

Please reach out if you'd like any other perspective or would like to discuss QoE / FDD services
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Reply by a searcher
from University of North Carolina at Chapel Hill in Winston-Salem, NC, USA
Be really careful with equipment! Construction equipment depreciation usually should not be considered when determining EBITDA. 1. Normalize any accelerated depreciation taken back to the asset book value. 2. Compare the normalized book value to FLV (forced liquidation value) for each asset. 3. Any changes made to asset values on the balance sheet have to then be used to adjust EBITDA or SDE for your lookback. If you don't want to mess with it, or want to or need to dispose of some of it pre- or post-close, I may be able to help. Good luck!
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