@Chris Johnson, I'm afraid I have to agree with most others, a service business is what you're stuck with at the moment. You also mentioned "earnout", this is the best approach and the most likely canidate is your foreman or on site manager who is running the show when you're not there.
I've done business valuations and in the analysis of your receivables, you will have lost sales or longer holding periods for one reason or another of the projects in the pipeline, doubtful accounts and discounts to receivables, so even saying 1.5X earnings needs to be looked at.
Jon is spot on, the system in place has worked for you, it's also been under your managment. You're not a franchised service with only one shop, if you had ten locations across the country and repeat business we could talk about blue sky. The only blue sky here is over your head, you're it!
You can look at the industrial stats in Standard and Poors and Moody's to find average performance and profitability ratios, selling yours above that may be possible, but it's not going to be bankable.
A buyer will need either cash or borrow or a combination. As Jon mentioned, what's the cost to replicate what you have or something very similar? Any inventory and equipment?
To borrow on the deal you need hard assets, unless you have large equipment, cranes, dozers maybe large vehicles, that have a market value. Small equipment and tools in a shop may go for pennys on the dollar, it's what you can negoiate, but a lender won't be valuing small assets for financing for any buyer. So what you may end up with is the reality of a little more than a salvage value, might be better to piece it out. Generally 50% is loanable with a decent buyer and one with experience as well.
Blue sky on a small service operation is not a bankable asset. Anything paid will be brought cash in hand by the buyer. Seems that's where you place most of the value and it will be difficult finding a buyer at a $M who could not duplicate what you do for much less.
If a buyer with cash is considering this investment, it will be compared to others. Your service has no real branding for repeat customers I'd think, not knowing what your niche is, but such as a resturant. Other alternative investments considered by your buyer, in a service industry will likely have a better qualified customer base. You're also runs on the local RE market, while NEW is large, it's not endless and there is competition as well. All to say, what would a buyer be looking at that entry level?
Not trying to repeat what others have said, but deeper into reality.
Now, if you have contracts to take on all REO rehabs for five banks for the next three years, we can talk blue sky. That is something that future business could be based upon.
Let's figure out the best way to dump it.
You said "earnout" that is really the key. An employee or partner buyout. I really think you're dead in the water competing with similar investments for real cash buyers (I could be wrong, but not likely).
If you can bring in a partner and allow them to earn an equity position at a contract price you'll not only make more but the deal will be more likely to close in the future.
Admit a partner, finance their position and at the same time allow them to eat while working. You won't pull this off in 6 months unless they do have capital. A longer period to finance the transistion is more likely, say three years. At that time, your company will not be selling, but refinancing. Your refinanced funds are based on the business, not a sale price, refinancing for operating capital. Restructure the business, you retire, your parachute includes continued salary or dividends or whatever benefits. Golden handcuffs with the obligation of benefits being paid can keep you in a position prior to other creditors as well.
How long would it take you to reveiw an appriasal and a deal? Not long! In 6 months you could be at least out of the office.
I'd say the best potential buyer is under your nose working with you. They will most likely see the business as being more valuable to them than any outside buyer. If you listed with a business broker, that is where they would start, getting an investor with someone there in the business.
BTW, this is usually the spin off for any smaller company.
Steve, same really applies. The valuation of public sales in RE is rather low due to the fluctuations in RE markets, which is more volitile than say people getting hungry and going to Ryans. Historical data for the past 5 years can provide close projections for a pro forma 2 years out, maybe 3. Beyound is guessing with the gut. It's negoiated.
Accounts receivables with current contracts 1.5, hard to get 2x @ 12 months out, less historic fallout. That is blue sky picking up existing accounts.
Contracts in force depend on the term remaing, strength of the party, history and cash flow generated basically, it's not always at a premium. Consider, to collect and maintain the account requires management, admin and expenses for RE managers.
This could go on forever..... what the market will bear.....
General Real Estate Academy (GREA)