What changes when the work is sold by project
The core framework still applies. What changes is how a buyer evaluates the earnings behind the numbers – and for a contractor with substantial project revenue, diligence goes deeper into four areas that affect both valuation and final purchase price.
1 · Work in progress
Percentage-of-completion accounting means reported revenue and profit depend partly on estimates about unfinished jobs. A buyer will rebuild the WIP schedule and test whether estimated costs, margins, billings, and percent complete are supported by actual job performance – looking closely at jobs running ahead of cost, changes in estimated cost-to-complete, under- and over-billings, unusual margin movements, and whether historical estimates have proved reliable.
2 · Backlog quality and margin fade
A buyer wants to know what is actually inside the backlog: how much is fully contracted versus less certain or contingent, how much comes from repeat customers, how far out it extends, and whether the margins carried in it are realistic. If projects consistently finish below the margins originally bid, that can point to issues with estimating, project management, labor productivity, or change-order discipline – and buyers price that risk.
3 · Bonding and surety
Where a contractor relies on bonding, capacity is a business asset. Buyers examine single-job and aggregate limits, the relationship with the surety, personal indemnity or guarantees, existing bonded projects, and how the surety relationship will be handled following a change of control.
4 · Net working capital
Working capital has an unusually large impact on the economics of a project-based deal. A buyer establishes a target, or “peg,” based on the working capital the business needs to operate normally, typically including receivables, retainage, WIP, and payables. Deliver the business below that target at closing and the purchase price may be reduced. Retainage and WIP matter most, because they can represent substantial capital tied up in completed or partially completed work. Understand how the target will be calculated before agreeing the structure – the methodology is part of the negotiation.
The headline multiple is only part of the equation. For a project-driven business, backlog quality, job-costing reliability, bonding capacity, and working-capital requirements all affect what a buyer pays and what the seller receives.
