How Buyers Value Mechanical, Electrical and Plumbing Engineering Businesses
Business owners often ask, “What is my company worth?”
The more important question is: “How would a buyer actually value my business?”
For owners of mechanical, electrical, and plumbing (MEP) engineering and specialty contracting firms, valuation is rarely as simple as applying a multiple to last year’s earnings. Buyers—whether private equity groups or strategic acquirers—look at a combination of financial performance, risk profile, and future scalability.
Here’s how valuation is really determined.
EBITDA Is the Starting Point – NOT the Answer
Most buyers anchor valuation to EBITDA, but reported EBITDA is almost never the final number used in a transaction.
Buyers will normalize earnings by adjusting for:
- Owner compensation above or below market
- One-time or non-recurring expenses
- Personal expenses run through the business
- Temporary margin compression or expansion
For many MEP firms, this “adjusted EBITDA” can differ meaningfully from what shows up on tax returns. Additional elements will factor into their valuation like backlog, recurring revenue vs. project based work, owner dependence and customer concentration.
Backlog Quality Matters as Much as Backlog Size
Backlog provides visibility, but buyers focus on quality, not just dollars.
They look closely at:
- Margin consistency across backlog
- Change order discipline
- Customer concentration within backlog
- Historical margin fade on completed projects
A $50 million backlog with unpredictable margins may be valued less favorably than a smaller, well-controlled backlog with consistent execution.
Recurring Revenue Commands a Premium
Service, maintenance, inspection, and recurring repair revenue typically receive higher valuation multiples than pure project-based work.
Why?
- Predictability
- Lower cyclicality
- Reduced reliance on bidding environments
Even a modest percentage of recurring revenue can materially improve how buyers underwrite risk.
Owner Dependence Can Reduce Value
If the owner is the primary estimator, relationship holder, or project problem-solver, buyers will factor in transition risk.
Firms with:
- Delegated project management
- Independent estimating functions
- Customer relationships spread across the organization are generally viewed as lower risk and more scalable.
Valuation is Ultimately About Risk and Repeatability
Two firms with identical revenue and EBITDA can trade at very different multiples depending on:
- Financial reporting quality
- Management depth
- Customer diversification
- Labor stability
Understanding these factors early gives owners time to influence outcomes—which need to be addressed years before you go to market. Working with M&A advisors that understand the buyers in the market is imperative for a successful outcome. Contact Anna White at FOCUS Investment Banking to discuss your future exit plans and how we can help prepare you for the buying market.
