Electrical Contracting Business

August 17, 2022

by a searcher in Westwood, NJ 07675, USA

Looking at a 40+ year old electrical contracting business (I only have a one pager right now) with $3.8m in sales and $515k SDE (13% margins), asking price $1.7m (3.3x SDE).

Customer base of builders and homeowners, no concentration, and primary activities are residential wiring, home theater, smart home systems, LED light installs and recently added solar installation for commercial and residential.

Owner has been transitioning out for a few years and there is a management team of 5 key staff in place including a GM, project estimators and job supervisors, who would stay with the new owner.

I previously had not been considering the trades in my search, but thinking of speaking to the owner.

Curious if anyone has gone deep in a business like this and/or has any key questions that you'd ask in the first meeting? Do you think a trades business buyer need to be skilled in the trade? Opportunities for recurring revenue? Any insights appreciated!

Reply by a searcher
from IE Business School in Seattle, WA, USA

I looked at an Electrical Contracting business when I was searching back in###-###-#### It resulted in a busted LOI, the two issues I would recommend looking into are:

1) What are the contractor licensing requirements in the states/areas the company does business in? Who in the company holds such licenses, & how likely is it those employees will stay. You might be able to obtain one yourself, but that will depend on your background & the requirements in your state.

2) Who does most of the estimating for the jobs? Similarly, how likely are those employees to stay? For the business I looked at, this item was the deal-killer as the owner was essentially a master Electrician who did 75% (or more) of the job estimating, which I could not feasibly replace for a decent cost.

Best of luck in your search!

Reply by an intermediary
from University of Tennessee in Denver, CO, USA

I worked at a larger tech company that purchased a quality electrical sub###-###-#### long story, but learned a fair amount about the trade. My takeaway is that the fundamentals of a good commercial/electrical sub are all around estimating, scheduling, and labor. Business comes in the door largely through relationships; quality estimators and planners are worth their weight in gold. One poorly planned project can throw your entire year - that can be your own fault or it can be a bad project. Good estimators/schedulers/planners keep you out of that. Labor is tough and limits expansion. Good companies have a core team that is usually extremely loyal, but those folks typically like to be home at night, which makes it hard to expand geographically. The operators I've know all came from the trade or had construction backgrounds.

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