Construction and renovation type businesses
May 27, 2024
by a searcher from Montclair State University - School of Business in Madison, WI, USA
I've been looking for these types of deals for a few months now. It seems like they all had some big years during covid. Is there a good way to measure which business will have lasting growth in this sector as opposed to some good years? What are some multiples everyone is seeing out there in the marketplace? I'm seeing anywhere from 2-3X multiples here in the midwest.
from University of Pennsylvania in Athens, GA, USA
In terms of multiples, it seems like 2-3x is pretty standard in the industry. BVR has some great industry statistics for residential renovation specifically (that you can dive into to see individual deals). Sellers / brokers are definitely trying to base pricing off of the great post-covid years (activity has declined but is still ahead of pre-covid trend). I recently put in an offer where I ran into the broker calculating the selling price using a very small SDE multiple sample (n=3) and then applying it to the previous 3 years SDE (rather than LTM). They were trying to take advantage of the post-COVID bump in renovation activity. Unfortunately, that anchored the seller on an above market sales price so we couldn't make a deal work.
from University of Denver in Lone Tree, CO, USA
On the commercial side if you're going after multifamily renovation companies watch out because the funds are running low after 3 years now of anemic transactions on the commercial market and lack luster rent growth.
Covid bumps should be done after###-###-#### I would look at year over year sales compared to the same time last year to see if they are on a similar trajectory or not and then push to understand their pipeline. This may be project work, but it typically has a long tail if you are dealing with architects drawing up the renovations, then applying for permits, you can start to come up with year end projections at this point pretty easily.