How to Sell a Construction or Contracting Business — Conclave Partners

A construction business is unusual among the companies we sell: at any moment most of its value sits in work that is neither finished nor paid for. The buyer is not acquiring a settled trading history. They are acquiring a book of half-completed promises, a tail of liability for buildings already handed over, and a working capital position that moves every month.

Those three things — unfinished contracts, warranty exposure and working capital — are where construction deals lose price. Not in the multiple, and rarely in the negotiation over the headline number. The money moves in the completion accounts, in the indemnities, and in the buyer's assessment of whether the reported profit on live projects is real.

This article sets out what buyers pay for contractors, how each of those three areas is examined, and what an owner should fix in the year before going to market.

Construction is large, essential and structurally difficult to underwrite.

The European Construction Industry Federation's 2025 statistical report puts more than three million enterprises in the sector, of which 95% employ fewer than twenty people. It accounts for more than twelve million workers in the EU27 — 6.5% of total employment and 31.1% of industrial employment — and 9.8% of GDP. Construction investment reached €1,604 billion in 2025, 45.6% of total gross fixed capital formation.

Read that as a buyer. The sector is enormous but composed overwhelmingly of very small firms, so acquirers have abundant choice and no scarcity premium. It is also cyclical, thin-margined and project-dependent, so the earnings of any individual contractor are volatile in a way a services business is not. Both facts push multiples down and diligence depth up.

Published ranges for contractors are wide and depend heavily on what kind of work the business does. Owner-operated general contracting is commonly discussed in low single digits of owner earnings, while established commercial and specialist contractors are typically quoted in a range of roughly 4x to 7x EBITDA. Specialist disciplines — mechanical, electrical, civil, design-and-build — generally command one to two turns more than commodity general contracting, because their work is harder to replicate and their margins are steadier.

The more important valuation principle in this sector is not the range but the base. Construction earnings must be normalised across a cycle rather than taken at a point in time: a single loss-making project can move trailing EBITDA by a fifth or more, in either direction. A contractor presenting its best year as the run rate invites a buyer to present its worst year as the run rate, and the negotiation then becomes an argument about which year was abnormal.

The practical answer is to show three to five years, with project-level margin analysis, and to explain the outliers rather than hide them. At Conclave Partners we would rather open with a normalised figure a buyer can verify than defend a peak number that will not survive the first week of diligence.

Most of the value dispute in a construction sale happens here.

Contractors recognise revenue on long-term contracts by reference to progress, which means reported profit depends on an estimate: how much of the work is done, and what it will cost to finish. Both halves are judgement, and both are where a seller's optimism and a buyer's caution collide.

Buyers therefore rebuild the contract schedule from the bottom up. For each live project they want the contract value, variations approved and unapproved, cost incurred to date, forecast cost to complete, amounts invoiced and certified, and retention held. From that they recalculate the margin the seller has taken to profit.

Three findings recur and each of them costs money.

The first is over-optimistic cost-to-complete. Where the remaining cost has been understated, profit has been recognised early — the buyer restates it and the earnings fall.

The second is over-billing. Where a contractor has invoiced ahead of work performed, cash looks healthy but the balance sheet carries an obligation to perform work already paid for. Buyers treat net over-billing as a debt-like item and deduct it from the price, and sellers are regularly surprised by how large that deduction is.

The third is contracts already in loss. Accounting requires a loss-making contract to be provided for in full as soon as it is foreseeable, and buyers apply that rule strictly. A project quietly running behind and expected to be recovered through claims will be provided in full and the claims valued at nil until agreed in writing.

That last point deserves emphasis. Unagreed variations and claims are the single most common source of disagreement in contractor sales. To a seller they are revenue earned and awaiting paperwork; to a buyer they are litigation risk. Anything not signed by the client is usually valued at nothing or close to it, and the only fix is to get variations agreed before the process starts.

The second area is the one owners underestimate most, because it concerns work already finished and invoiced.

In much of continental Europe a contractor's liability for completed buildings is fixed by statute, is strict, and cannot be contracted away.

In France, Article 1792 of the Civil Code makes a builder liable without proof of fault for ten years from acceptance of the works for damage that compromises structural soundness or renders the building unfit for its purpose. It operates in tiers: a one-year guarantee of complete performance, a two-year guarantee that fittings and equipment function, and the ten-year decennial cover for structure, foundations, walls, floors, roof, framework and watertightness. The corresponding insurance is compulsory.

Spain's Ley de Ordenación de la Edificación 38/1999 sets a comparable three-tier regime: one year for defects in finishes, three years for defects affecting habitability, and ten years for defects affecting structural safety, with all building agents liable — developer, contractor, architect and technical architect. Once a defect appears, claims prescribe after two years.

Italy applies Article 1669 of the Civil Code, giving ten years for serious defects affecting stability and a shorter period for lesser ones.

For a seller three consequences follow. First, this liability travels with the company in a share sale, which is why buyers of contractors are unusually insistent on asset structures, or on indemnities and escrow when a share sale is unavoidable. Second, the insurance position matters as much as the legal position: buyers check that decennial or equivalent cover was in force for every project in the tail, that it was placed with a solvent insurer, and that policies remain accessible after a change of ownership. Third, the historic claims record is diligence material — a contractor with a clean ten-year record is materially easier to sell than one with a pattern of remedial work. In our experience at Conclave Partners, the completed-projects file is examined more closely in construction than in any other sector we advise on, and it is the file sellers most often have not assembled.

The third loss happens after the price is agreed, in the completion mechanism.

Contracting is a working capital business with unusually violent swings. Retentions — commonly a percentage of each certificate held by the client until practical completion and released partly after the defects period — sit on the balance sheet for years. Payment terms run long, subcontractors are paid before clients pay, and the balance moves with the project cycle rather than with the calendar.

Nearly every deal above the smallest end of the market is priced cash-free and debt-free against a normalised working capital target, set from an average of the preceding twelve months. Actual working capital at completion is measured against that target and the price adjusts euro for euro.

In construction that mechanism is more dangerous than usual for three reasons.

The average is unrepresentative. A contractor's working capital at the end of a large project bears no relation to its working capital mid-project, so a twelve-month average measured at the wrong moment simply transfers value.

Retentions must be classified explicitly. Whether retention receivable counts as working capital or as a separate consideration item is worth negotiating carefully, because in a business with meaningful retentions it can be one of the largest numbers in the transaction.

Over-billing and provisions interact with the peg. Amounts already treated as debt-like should not also depress working capital, and buyers will sometimes count them twice unless the definitions are drafted precisely.

The seller's discipline is straightforward: negotiate the definition, not just the number, and do not run working capital down before completion in the belief that it releases cash — it lowers the delivered balance against an unchanged target and triggers a deduction.

Construction contracts are frequently non-assignable without consent, and public-sector work adds qualification and prequalification requirements that may not survive a change of ownership. Both need checking early, contract by contract, because they determine whether an asset sale is even feasible.

Performance bonds and parent company guarantees deserve the same attention. Where bonds are supported by the seller personally or by a holding company leaving the group, they must be replaced at completion, and the buyer's bonding capacity becomes a condition of the deal rather than a detail. A contractor whose surety lines are personal to the departing owner has a smaller buyer pool than its accounts suggest.

Buyers ask who actually delivers the work. A contractor that self-performs has a workforce to retain and equipment to value; one that subcontracts most trades has a supply chain to verify and less to depreciate.

Site management is the retention question that matters. Contracts are won and delivered by named project managers and estimators, and their departure during a process damages the order book directly. Where the owner is also the principal estimator or the main client relationship, the buyer is acquiring a dependency and the price reflects it.

Owned plant is valued separately and realistically: buyers deduct finance secured on machinery, examine maintenance history, and discount equipment carried at a book value that no longer reflects condition.

Trade buyers dominate: regional contractors expanding geography, larger groups acquiring a discipline or a client list, and specialists consolidating a trade. They understand the risks, which cuts both ways — they pay properly for a clean order book and they price the WIP schedule accurately.

Private equity is active in specialist and services-adjacent contracting, particularly where revenue includes maintenance, testing or compliance work with recurring characteristics. Pure project-based general contracting attracts less financial-buyer interest because the earnings are too lumpy to leverage.

Management buy-outs are more common here than in most sectors, because the people who run the projects are often the only buyers who can properly assess the contract book. They are usually financed by deferred consideration, which puts the seller's outcome back into the performance of the business they have left. Establishing which of these three routes a contractor realistically has, before any materials are written, is where Conclave Partners spends the first weeks of a construction mandate.

Get variations agreed and signed. Every unapproved variation and unsettled claim is a discount waiting to happen. This single item usually returns more than any other preparation.

Rebuild the contract schedule properly and keep it monthly: contract value, approved and pending variations, cost to date, cost to complete, billed, certified, retention. Reconcile it to the accounts. A buyer who cannot tie the WIP schedule to the ledger stops trusting the earnings entirely.

Provide for loss-making contracts now rather than arguing about them later. A seller who has already taken the pain has a credible schedule; a seller who has not looks either optimistic or evasive.

Assemble the completed-projects file: handover certificates, defects periods still running, insurance policies covering each project in the statutory tail, and the claims history. Confirm that cover remains available after a change of ownership.

Collect retentions that are due. Money sitting uncollected for years is not an asset a buyer will pay for at face value.

Review every material contract for assignment and change-of-control provisions, and identify which bonds and guarantees are personal to you.

Normalise the accounts honestly, including a market salary for your own role and any personal costs run through the company. Adjustments a buyer can verify are accepted; adjustments supported only by the owner's word cause the buyer to discount the whole earnings figure. Sellers who ask Conclave Partners where to begin are pointed at the variations and the WIP schedule first, because those two items determine what the earnings actually are.

A prepared contractor typically takes six to twelve months from launch to completion. Diligence is heavier than average because the contract review is granular and buyers frequently commission a technical review of the live projects in addition to the financial work.

Two features of the timetable are specific to construction. Buyers often want a completion date falling at a natural point in the project cycle, which can add months; and the completion accounts are prepared after closing, so the final price is not known on the day of signing — another reason to negotiate the definitions rather than the estimate.

Confidentiality matters. Clients awarding future work dislike uncertainty about who will deliver it, and site staff hear rumours quickly.

Established commercial and specialist contractors are commonly discussed at roughly 4x to 7x EBITDA, with specialist disciplines earning one to two turns more than commodity general contracting, and owner-operated firms trading lower on an owner-earnings basis. The multiple matters less than the base it is applied to: construction earnings should be normalised across a cycle, because a single project can move trailing EBITDA by a fifth or more.

They rebuild it. For each live contract they examine the contract value, variations, cost incurred, forecast cost to complete, amounts billed and certified, and retention, then recalculate the margin taken to profit. Unapproved variations and unsettled claims are usually valued at nil, over-billing is treated as a debt-like item, and foreseeable contract losses are provided in full.

In a share sale the liability stays with the company and therefore passes with it. Several European regimes make that liability strict and non-excludable: France imposes ten-year decennial liability under Article 1792 of the Civil Code, Spain applies one, three and ten-year periods under Law 38/1999, and Italy provides ten years for serious structural defects under Article 1669. Buyers respond with asset structures, indemnities, escrow, and close scrutiny of the insurance behind each completed project.

Almost always the working capital adjustment. Contracting balance sheets swing with the project cycle, so a target set on a twelve-month average and measured at the wrong point transfers value to the buyer. Retentions and over-billing must be defined explicitly, and the definitions are more important than the estimate.

Yes, wherever possible. An agreed variation is revenue; an unagreed one is a dispute the buyer will price at nothing. Settling claims and getting variations signed in the year before launch is usually the highest-return preparation available to a contractor.

Roughly six to twelve months from launch to completion for a prepared business, with contract and technical diligence the main reason it runs longer than other sectors. The completion accounts then take a further period after closing, so the final adjusted price is settled some months after the deal is signed.

Ildar Zakirov — Conclave Partners ildar@conclavepartners.com

Sergi Kosiakof — Conclave Partners sergi@conclavepartners.com