Fact 1: In my 20+ years as an intermediary I have never seen so many construction related businesses on the market. This includes building materials, flooring, hardware distributors, window coverings, and specialty subcontractors.
Fact 2: In 2006 every bit of research done by anybody showed at least five years of solid commercial construction in the Puget Sound area.
Fact 3: We all know what happened in 2008.
Buyers and bankers need to be careful. I don’t mean avoid the construction industry but don’t let anybody convince you the valuation should be anywhere near what it would be for manufacturing, distribution, or service.
I’m working on one deal now for a $15 million revenue construction products distributor and the price is 3X profit. The seller recognizes it’s a market at a peak.
Construction is cyclical, very cyclical, and is economy centric. And, obviously, very hot right now. If I was looking at anything construction related I would want to see financial statements for the last 10 years. You’ll see the ups and downs. The good ones will survive, but they don’t have acquisition debt payments.
