When doing a valuation, you must consider the potential impact of industry-specific issues. For electrical contractors, these issues include workforce needs, work backlogs and underlying contracts, union pension liabilities, long-term leasing agreements, and key person risk. Another key issue with electrical contractors is bonding requirements.
Common bond: The bonding process is very important, especially in large metropolitan areas where a contractor can’t work on certain jobs without being bonded, explains Matthew Crane (Marshall Stevens), Where it’s not legally required, it’s less of an issue but still must be considered. “If a company can’t get bonded for whatever reason and this, say, prevented it in the past from expanding into a different market, then that is a negative that heightens the risk of the company,” says Erin Hollis (Marshall Stevens). “On the other hand, if a company could get bonding but has not so far, that might represent an opportunity that could be included in the forecast or increase its potential value in the eyes of a third-party buyer.”
Crane and Hollis are contributors to BVR’s new guide, What It’s Worth: Valuing Electrical Contracting Companies, which includes more insights, a detailed case study, benchmarking data with analysis from Pratt’s Stats, rules of thumb from the Business Reference Guide, and more.