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Integrity. Vision. Success.

Time on Market: 30 months

Client Objective: “Should I sell my company now or continue growing and sell later?”

Discovery Meeting: The owner started this business eight years prior. The company had a great reputation, year-over-year growth, and revenues in the mid 20MM range. Over the years a service division developed, however, the owner did not focus on this aspect of the business even though the profit margins were much higher than the construction division.

Assessment: Construction revenue is project-based and this type of business can be difficult to transition to new ownership due to the seller’s personal relationships in the industry. The buying power of this company was excellent because of the volume of equipment purchased. If pursued, the construction side had the potential to supply approximately 2,500 new service customers per year.

Deal Process: We identified a Private Equity Group that was interested in acquiring a platform company in this industry, however, they were more interested in the service side due to the higher profit margins. We explained that the benefit of making this company their platform is that their vendor pricing is approximately 44% lower than service only companies. That meant they would realize 44% more profit for every dollar spent on equipment by any future service companies they acquire. Additionally, the construction side could automatically supply thousands of new service customers annually.

Major Challenge: The large portion of low margin construction revenue resulted in a low overall percentage of EBITDA compared to total revenue. For this reason, the Private Equity Group’s conventional lender would not approve the transaction. This buyer found a mezzanine lender that would fund the transaction; however, they required equity and had an extremely high interest rate making the terms unfeasible.

Solution: We advised our client to shift gears and consider buying a service company as that would be the quickest way to increase the overall revenue mix and net profit margins. We targeted an ideal service company that if acquired would more than double the size of the service division. We reached an agreement and were able to close the transaction within 45 days. Twelve months later the integration was complete. Prior to going back to market, we reached out to the Private Equity Group that previously had interest. Due to the increased EBITDA, revenue mix, and profit margins, the buyer was able to get acceptable financing terms and we were able to secure a better purchase price for our client.

Result: Closed transaction at the high end of market value.

Conclusion: An experienced M&A advisory firm can help you develop and implement strategies that will increase the profitability and purchase price of your business.


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