Valuing paving contractor companies: What every appraiser should know before these engagements

When you’re looking to value a paving contractor business, it’s important to consider paving company valuation from a number of different angles. From seasonality business issues that affect cash flow to specific requirements when bidding on government contracts, there are a lot of unique factors to consider that set this industry apart. Avoid pesky bumps in the road with these crucial insights from BVR’s new special report, What It’s Worth: Valuing Paving Contractors.

About the Paving Contractor Company Industry

The paving company industry is comprised of mostly small and midsized players, which creates a wealth of valuation opportunities in the industry. After a consistent decline over the past few years, the overall number of paving companies is expected to begin to tick back upward, driven by additional infrastructure investment. 

While smaller players dominate the industry, there is some scale. Data reveal the largest 1.2% of contractors generate 20% of overall industry revenue, and these are operators with multiple locations in different markets. Over 98% of the remaining contractors have less than 250 employees. And just under 14,000 companies are classified as “road and highway construction companies,” and another 199,000 companies have a smaller focus on residential driveways.

There is a heavier concentration of paving contractors in states that have larger built-up infrastructures, often driven by the size of the population. The states with the highest concentration of the total number of domestic paving companies are:

  • New York;
  • Pennsylvania;
  • Virginia;
  • North Carolina;
  • Ohio;
  • Illinois;
  • Florida;
  • Texas; and
  • California.

Valuation opportunities in the industry are being driven on two fronts. First, many smaller paving companies are sold as the founders engage in estate planning. Second, larger international firms such as Balfour Beatty, Skanska AB, and HOCHTIEF are seeking to enter or expand their presence in the U.S. paving and road constructions markets.

Unique Factors That Drive Paving Company Value

Revenue, contracts, client base, and sales drive the value of all businesses. However, paving contractor businesses have many additional unique factors that drive their value, including:

  • How companies bid on and compete for work;
  • How government and nongovernment clients pay for work;
  • Varying commodity prices;
  • Seasonality of work; and
  • More.

Special Considerations When Valuing Paving Companies

Paving companies are unique businesses that many industry-specific elements can impact when it comes to valuation. Among others, these factors include the type of asphalt used, the volume of equipment used, and whether the company specializes in working for the government or the private sector.

Some of the special considerations that come into play when valuing a paving contractor business include:

  • Minority-, woman-, or disadvantaged-owned businesses;
  • Family-owned businesses;
  • Key person concerns;
  • Union vs. nonunion;
  • Liabilities;
  • Bid work and nonbid work; and
  • More.

Make sure the road is smooth in your next paving company valuation. Get critical insights on paving industry trends and risks, learn the best methods to apply when valuing these companies, and see a real-world case study including a thorough review of a company’s financial statements and assessment of its liquidity and profitability. Download a chapter from the What It’s Worth: Valuing Paving Contractors special report.