How to Sell an Engineering Services Company

Sell an Engineering Service Company

Selling your engineering services company is like sending your child off to college. It can be a difficult move to make and there is a lot of emotion involved. After all, you have poured hours upon hours into building your company. This review from a business broker seeks to make the selling process slightly easier and less stressful. We discuss the sales process, highlighting the steps that are involved and how to determine your engineering company’s value. 

About The Engineering Services Industry

The engineering services industry comprises establishments primarily engaged in applying physical laws and principles of engineering in the design, development, and utilization of machines, materials, instruments, structures, processes, and systems (Business Reference Guide). Specifically, the services within the engineering industry may include:

  • Provision of advice
  • Preparation of feasibility studies
  • Preparation of preliminary and final plans and designs
  • Provision of technical services during the construction or installation phase
  • Inspection and evaluation of engineering projects

 

The industry overall has performed well with sustainable growth. The industry is, however, highly fragmented. Environmental regulations have changed the way many engineering companies operate. For established companies, there is reliable income that is often highly appealing to prospective buyers. Here are the most recent engineering industry data numbers and projections: 

  • There are approximately 161,500 engineering companies in the U.S. 
  • There was a 3.4% annual growth for the engineering industry from 2018 to 2023
  • The engineering industry generates $326.5 billion in annual revenue
  • The annual profit for the engineering industry is $31.3 billion
  • Experts predict a sizable increase in annual growth (2.0%) from 2023 to 2028

You should also check: How to Sell a Budget Blinds Franchise Store

How to Determine The Value of Your Engineering Services Company

Here at Sigma Mergers and Acquisitions, we recommend a market approach for your business valuation. This uses your seller’s discretionary earnings (SDE) and other metrics and applies them to the following rule of thumb data for the engineering industry: 

  • Engineering service companies sold between 2.24 and 3.53  times the Seller’s Discretionary Earnings (SDE)
  • Engineering service companies sold between 3.38 and 7.97 times the Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
  • Engineering service companies sold between 0.69 and 0.73 times the annual net sales

 

However, the best valuations go far beyond your financial information alone. Although the seller’s financial records are generally the most important aspect of the sale for potential buyers, there are many additional factors that may influence the number of your offers. Specifically, this can include your unique competitive advantage, growth potential, quality of your work and workforce, and reason for selling

A Step-by-Step Guide to Selling Your Engineering Services Company

The sales process is unique for every engineering company as no two companies are the same. However, there are several common steps that you can expect. These steps include: 

  1. Determine your company’s value
  2. Plan and prepare for the sale
  3. Bring your company to market in a confidential manner
  4. Negotiate and finalize a deal with a signed LOI
  5. Complete the due diligence process
  6. Close the sale and transfer ownership

 

Step 1: Determine Your Company’s Value

As previously discussed, you should start the sale process with a market-based business valuation. This determines the price that is considered fair for your company on the private market. Of course, if you choose the right business broker, then it is possible that you may receive offers above your fair market value (FMV) as well. 

Step 2: Plan and Prepare for The Sale

Your company’s value may play a major role in your overall sales strategy. For instance, if you receive a value that allows you to reach all of your sales goals, then going to market immediately is likely your best option. In other cases, it may be best to wait for a more opportune time to sell, particularly if you can easily improve your value and/or the market may be more favorable at a later time. 

Additionally, your broker, CPA, and attorney can help you prepare your legal and financial information. This includes your federal tax returns, internal profit and loss (P&L) statements, balance sheets, list of employees, list of clients, copy of your insurance policy, and lease or real estate appraisal information. 

Step 3: Bring Your Company to Market in a Confidential Manner

Confidentiality is essential when selling your engineering company. Otherwise, public news of your company’s sale could disrupt business operations, including the cancelation or non-renewal of existing contracts. In other instances, a non-confidential sales process may simply scare would-be buyers away from making offers. 

Due to this, you should choose a broker who understands the sales process and how to maintain confidentiality. Ideally, your broker should have access to private networks, databases, and connections within your industry to ensure your sales memorandum reaches the eyes of hundreds of prospective buyers

Step 4: Negotiate and Finalize a Deal With a Signed LOI

Your broker should also screen offers, negotiate with potential buyers, help with contingency planning, and ultimately finalize a deal with the buyer that allows you to best reach your exit strategy goals (including maximizing the sales price). This step should end with a signed letter of intent (LOI) from the buyer you select. 

Step 5: Complete The Due Diligence Process

The due diligence process allows the buyer an opportunity to verify all information that was provided throughout negotiations. In doing so, the buyer may request financial, legal, and operational documents. They may also provide a series of questions or the seller to answer, along with requesting a visit to see your daily operations firsthand. In some cases, a meeting with certain employees, business partners, and/or company executives may be arranged as well. 

Step 6: Close The Sale and Transfer Ownership

The last steps are to close the sale and transfer ownership of your company to the buyer. Your broker and attorney can help you prepare for closing. This may involve collecting certain documents (i.e. insurance policy and information and your purchase agreement). During closing, you will attain the final signatures for the purchase agreement and confirm the payment has been successfully sent. During the transfer process, you will provide the buyer with access to all information, platforms, and systems, along with notifying employees and updating legal, insurance, and financial information. 

Contact The Business Brokerage and Consultancy at Sigma Mergers and Acquisitions

We take great appreciation in assisting business owners to plan and execute their exit strategies. If you are considering selling your engineering service company, then please contact us today for more information and to receive a free, no-obligation business valuation from an experienced business broker.

CATEGORIES
Scot Cockroft Business Broker
Hi, I’m Scot Cockroft.

When I founded Sigma Mergers and Acquisitions back in 2003, I had sold my business the year prior.

Now, that can sound good, but let me tell you, back in 2003, it was not easy to sell a business. Not that I’m saying in modern day times it’s easy to sell a business, but back then I interviewed broker after broker after broker, and no one was interested in actually seeing the value that my business brought to the table.

SHARE
Facebook
Twitter
Telegram
LinkedIn

Ready to get started?

Ready to Get Started?

Footer

Sigma is a the leading business broker in with Corporate offices in Dallas/Fort Worth with roots from 1984. Over 600 businesses sold in Dallas, Fort Worth, Texas, Oklahoma and across the South. Sigma provides full business brokerage services with NO upfront fees. We provide Market approach business valuations for business sales. Sigma is passionate about helping business owners achieve their goal of financial security. Contact us today for a free no obligation business valuation. We are here to help you achieve your goals.

Our Address

(214) 214-9400
Info@sigmamergers.com
Corporate Headquarters in Dallas

Quick Links