Contractor Exit Strategy 4 of 6: Merger with a Similar Contractor

Merging with a contractor that has a complementary market position and management team can be both a great exit strategy as well as an effective growth strategy.

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The valuation of this type of deal is less than a strategic sale to an outside buyer, where the buyer is looking for rapid scalability to get their return on a high valuation.  

Succession: Exit Strategy 4 of 6 - Merger With Similar Contractor.

In this type of a merger, there might be some modest operating synergies and growth opportunities, but for the most part, the business is expected to continue to perform as it has been.

Achieving these synergies requires complementary management teams and aligned cultures. Preferably, this has been tested before the deal through working together on a few projects.  

The most important financial dynamics to analyze in this type of deal are:

  • What will be the combined financial strength of the two contractors? Stretching too far will endanger the owners of both.  
  • Don’t overestimate the operating synergies or growth that will be achieved in the deal.  

The major upside for the owner(s) that are exiting is the security and the stability of the combined operations as they will most likely be getting their capital out over time depending on the structure of the deal.    


Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....

Succession
Continue building value in your business, yourself and your key team members with a good succession strategy....

Bias for Action - Behavior That Matters
“Speed matters in business. Many decisions and actions are reversible and do not need extensive study. We value calculated risk taking.” - From Amazon Principles
Focused Resources = Maximum Results
Contracting is a relatively low-margin and high-risk business. Contractors can’t afford to spread out their resources on projects or in their businesses. Leaders must put maximum resources behind their biggest bottlenecks or opportunities.
Competency and Compensation
A large part of sustainable growth for contractors is being able to effectively leverage people with a narrower set of skills to still deliver the same level of value-add to the customer.