Selling a Construction or Trades Business in BC
Construction and the skilled trades represent one of the largest categories of privately held businesses in BC and one of the most active in terms of transaction volume. The sector spans general contracting, residential and commercial construction, specialty trades such as electrical, mechanical, plumbing, HVAC, roofing, framing, concrete, and finishing, site preparation, excavation, paving, and the equipment and services that support all of the above.
For owners of construction and trades businesses considering a sale, the transaction landscape involves industry-specific considerations that affect both value and structure. Owner-dependence, project lumpiness, bonding, work in progress, key personnel, and the cyclicality of the construction market all shape how buyers approach diligence and pricing.
KitsWest Capital advises construction and trades owners across BC, including the Lower Mainland, the Fraser Valley, the Okanagan, Vancouver Island, and the Interior. The work draws on broader M&A frameworks adapted to the specific realities of the sector.
Why Construction and Trades Transactions Are Different
Construction and trades businesses share several characteristics that distinguish them from other privately held businesses:
• revenue is often project-based and lumpy rather than recurring
• owner relationships with developers, general contractors, and key clients drive most of the work
• bonding capacity is a competitive barrier and a transaction issue
• working capital is dominated by work in progress and retainage
• key project managers, estimators, and foremen are often as important as the owner
• regulatory licensing and certifications affect transferability
• WCB classification and rates carry through to the buyer
Each of these features shapes how a transaction is structured and what diligence focuses on.
The Subsector Landscape
The construction and trades category is broad. Typical subsectors we work with include:
• general contracting (commercial and residential)
• specialty mechanical trades (HVAC, plumbing, refrigeration)
• specialty electrical trades
• framing, drywall, and finishing trades
• roofing
• concrete and foundations
• site preparation, excavation, and earthworks
• paving and road construction
• infrastructure and civil contractors
• equipment dealers, rental, and services
Each has its own buyer pool, valuation conventions, and risk profile. A specialty HVAC business and a civil contractor face very different transaction landscapes even when they operate from neighbouring locations.
Who Buys Construction and Trades Businesses
The buyer universe in this sector has changed considerably over the last decade. Categories include:
• strategic acquirers in trades consolidation, often private equity backed platforms
• larger general contractors acquiring specialty trade subcontractors
• regional and national consolidators in specific trades (electrical, plumbing, HVAC, roofing)
• private equity sponsors building lower mid-market trades platforms
• family offices investing in essential-service trades
• search funds and independent sponsors with strong interest in established trades businesses
• owner-operator buyers, including next-generation operators looking to acquire established companies
The Trades Consolidation Phenomenon
Over the last several years, private equity has built a number of consolidator platforms in essential trades, particularly HVAC, plumbing, electrical, and roofing. These platforms acquire established local trades businesses, integrate them, and pursue further acquisitions.
For BC owners, this has implications:
• valuation multiples in essential trades have moved up materially
• there are now several institutional buyers in many trades that did not exist a decade ago
• rollover equity is often part of the structure, allowing owners to retain upside
• the structures often include earnouts and management retention arrangements
• the platforms have professional diligence processes that are demanding but well-organized
Not every trade is currently the focus of consolidator interest, but the pattern has spread from HVAC and plumbing into other categories.
Owner-Dependence as the Central Issue
In most construction and trades businesses, the owner holds the key client relationships, the technical or estimating expertise, the bonding relationship, the licensing, and the strategic direction. Owner-dependence is the central valuation issue.
Steps that reduce owner-dependence typically include:
• developing depth in project management and estimating
• formalizing key client relationships through multiple touchpoints
• documenting estimating, bidding, and operating procedures
• moving the owner out of day-to-day operations over 18 to 36 months
• establishing succession depth in technical roles
Owners who have not done this work often face buyer-imposed earnouts or extended transition periods. Owners who have done it well can sell on better terms.
Work in Progress and Backlog
Buyers in this sector pay close attention to work in progress (WIP) and backlog.
Key questions include:
• the size and profitability of the current WIP
• the quality of WIP accounting and revenue recognition
• the backlog of signed but not yet started contracts
• the pipeline of bids outstanding
• historical conversion of bids to contracts
• historical accuracy of WIP estimates
WIP and backlog feed directly into both the valuation conversation and the working capital adjustment. Owners benefit from clean, consistent WIP accounting well before going to market.
Bonding, Licensing, and Surety
Bonding capacity is a competitive feature in many construction businesses. In a transaction:
• the bonding relationship typically does not transfer automatically
• the buyer needs to establish their own bonding capacity, often based on their financial strength and the combined entity
• the transition can affect what projects the business can pursue immediately after closing
• letters of intent should address bonding continuity
Licensing requirements vary by trade and by jurisdiction. Some licenses transfer with the business, others require the buyer to hold the qualifying credentials. This affects who can be a credible buyer.
Working Capital and Key Adjustments
Working capital in construction and trades is dominated by:
• accounts receivable, including retainage and holdbacks
• work in progress (under-billings or over-billings)
• accounts payable
• billing in advance of work for some contract types
Retainage typically runs 10 percent of progress billings and is held until project completion. How retainage is treated in working capital can move the closing adjustment by significant amounts. This should be addressed in the LOI, not left to the purchase agreement.
Equipment, Vehicles, and Tools
Construction businesses are equipment-intensive. Considerations include:
• book value versus market value of the fleet
• condition and replacement cycle
• leased versus owned equipment
• whether equipment is held in the operating company or a separate entity
• upcoming capital expenditure needs that buyers will model
In some transactions, the equipment is the largest asset on the balance sheet. Buyers often request an equipment appraisal as part of diligence.
Cyclicality and Multiple Implications
Construction is cyclical. Buyers normalize earnings across the cycle, using:
• trailing five-year averages rather than trailing twelve months
• analysis of the residential versus commercial versus public sector mix
• attention to backlog and pipeline as forward indicators
• cycle-adjusted multiples
Multiples vary widely across the construction and trades sector. Essential trades with recurring service revenue (HVAC, plumbing, electrical maintenance) trade at higher multiples than project-based construction. Specialty subcontractors generally trade higher than general contractors of similar size.
Earnouts in Construction Transactions
Earnouts are common in construction transactions for two reasons. First, project lumpiness makes the recent twelve months an unreliable indicator. Second, owner-dependence creates buyer concern about transition. Common earnout structures involve:
• a defined performance period (typically one to three years)
• a metric that the seller can influence (revenue, gross profit, or EBITDA)
• protective provisions on how the business is operated post-closing
• clear definitions and dispute resolution
Earnouts can save deals that would otherwise fail to close on price. They can also create disputes if the metric and the operating model are not carefully defined.
How KitsWest Capital Helps Construction and Trades Owners
KitsWest Capital advises construction and trades owners across BC on M&A, valuation, and debt and capital matters. Our work draws on the broader M&A frameworks adapted to the specific dynamics of this sector.
Typical engagements include:
• pre-sale valuation and identification of value drivers and detractors
• preparation work to reduce owner-dependence and clean up WIP accounting
• process design to reach the right buyer pool, including consolidator platforms
• structuring of earnouts, rollover equity, and other contingent components
• execution and negotiation through closing
Final Thoughts
Selling a construction or trades business in BC is more straightforward today than it was a decade ago. The buyer universe has expanded, multiples have risen in many subsectors, and structures like rollover equity and platform integration have become standard.
At the same time, the sector’s specific dynamics, including owner-dependence, WIP, bonding, and cyclicality, all reward preparation. Owners who go to market well-prepared typically achieve materially better outcomes than those who do not.
Speak with an Advisor
If you are evaluating a business sale, acquisition, unsolicited offer, or valuation matter, KitsWest Capital welcomes confidential discussions.
