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
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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:
- Determine your company’s value
- Plan and prepare for the sale
- Bring your company to market in a confidential manner
- Negotiate and finalize a deal with a signed LOI
- Complete the due diligence process
- 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.
Scot Cockroft is the Owner & President of the #1 ranked Business Brokerage, Business sales and M&A firm in Texas. Scot has been named Named Deal Maker of the Year by Dallas Business Journal.
He is committed to a “different” type of business brokerage firm, one that is NOT about a sales pitch but, rather, results! In short, a business brokerage firm that is committed to performance-based compensation. Scot believes in these principles as well as a candid honesty with clients. His candid style often takes buyers and sellers by surprise, but is often what assures successful connections between the two.
Feel free to reach out!