Experience with Acquiring General Contractors in Metro Areas?

October 02, 2025

by a searcher from Technische Universität München in New York, NY, USA

Hi all, I’m exploring acquisitions of general contractors and remodeling businesses (kitchen, bath, flooring, plumbing, etc.) in densely populated metro markets. A few specific questions I’d love input on from anyone who has looked at or acquired in this space: (1) Off-the-books revenue: Many owners report a meaningful portion of work in cash. How do you consider this in your diligence, and with lenders for your valuation? (2) Project-based revenue model: GC work is highly project-driven with ties to designers, architects, and building management. What are the risks you've seen here with financing, and how do you mitigate them? (3) Personal relationships: GCs often depends on longstanding ties with architects, designers, and building management. How durable are these relationships post-acquisition, and what transition structures help preserve them? If you’ve acquired or diligenced GCs/remodelers in metro areas, I’d be very grateful for lessons learned, things to watch out for, or creative ways you structured deals. Thanks in advance! Looking forward to the discussion.

Reply by an intermediary
from Babson College in Boston, MA, USA

^redacted‌ thanks for tag. GCs are a difficult business to acquire for a few of those reasons that you've highlighted. But the biggest one I would flag for you to consider is who is going to be the operator? GC work is heavy into relationships with finding customers, managing subcontractors and knowing a piece of each trade to know when its going wrong. ‌If you don't have that experience, where will you find someone to do it? If they're capable of doing it, there's no reason for them to do it for you. I know this sounds like its applicable to all industries but its a major risk for a GC business. Not to mention you're putting a lot of trust into an individual that one wrong move on a project that goes belly up and so does your cash flow/business. 1. Cash revenue is almost impossible to include in what gets underwritten. The plus side to this is there's likely some costs he's paying with cash to offset as well. Be very cautious with this however. If its meaningful to the deal (i.e. over 10%) then you likely want to move on. 2. Project based revenue requires POC accounting for due diligence purposes. Find a QoE provider that understands this so you can reflect the financials appropriately. You'll also want to make sure there's escrows to capture risks associated with WIP projects. 3. This question partly depends on the size of the business. If its too small, relationships are everything. IF its of decent size, there's a good likelihood that they rely on your revenue the same as you do their contributions to the work. Hope this helps.

Reply by an investor
from University of Pennsylvania in New York, NY, USA

Based on my experience in a different industry, but one with meaningful cash revenue, is to be aware of off-the-books COSTS as well. He may be paying some employees off the books, and when you move them on to books, they will get much more expensive. They will now want to be trued up for income taxes and you'll have to pay the employer portion of payroll taxes. With low paid hourly employees you might not be able to convince them of the new pay structure which introduces significant business risks (i.e. if all your employees walk off).

+22 more replies.

Join the discussion