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April 27, 2022

by a searcher from George Mason University - School of Business in Charlotte, NC, USA

I am mainly focusing on construction businesses. I am interested to know how some community members approach looking at financials for the last 2-3 years when there has been significant changes in the market (high new construction, materials risk, what good margins look like, etc)

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Reply by an investor
from Harvard University in Chicago, IL, USA
Hi Brendan - We've done work in the AEC (Architectural/Engineering/Construction) space and generally speaking, PE investors steer clear of construction. To your point, the businesses are cyclical which makes it tough to use leverage to fund the acquisition. That said, i) if the equity check is manageable and, ii) you are confident you can achieve your return through growth, iii) your investors will write the equity check, and; iv) you believe there a logical buyer 5-10 years down the line, you may be able to find businesses at decent valuations (just be careful of the value traps (i.e., the 2x EBITDA business that has far too many issues to be worth acquiring).

To address your question, I might propose a valuation based on the 2 or 3 year average but this may be a tough sell with the seller if recent performance has been good. You need to have a good sense for what you can do with the business and decent conviction in your near-term projections.

Happy to chat anytime.
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Reply by a searcher
from University of Notre Dame in Charlotte, NC 28277, USA
Welcome to the search, Brendan! Although I'm a fellow searcher, I've been consulting for a construction company (fire restoration) the past two years after they were acquired by P/E and am happy to talk through some of the learnings from that transaction/operations if you want to DM me and connect.
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