How to appraise a Geotech Engi. business 3

[vorafr]

I am in the process of acquiring an existing geotech firm. The firm has been in the business for approx 15 yrs. The owner (registered eng) has health issues and is unable to work. The firm has currently no work (poor economy + no engineer) and the staff has been laid off. They have material testing lab and office equipment and furniture.

I would like to have an appraisal done by a third party; however, because of the specialized field, most business brokers are reluctant to spend time.

My thoughts are this:
1. From the income approach, it is difficult to put a value since there is no backlog of work. There are past tax records however, i feel that service business is tied mainly to the owner (or engineer in-charge).
2. I feel that more realistic approach is to do an asset-based evaluation where the current market value of the equipment, furniture, etc can be added.
The goodwill value of the company is a difficult to appraise.

If anyone can shed some light on how to appraise this business would be much appreciated.

Thanks.
Frank

 

[iandig]

See previous posts in Soils Testing and geotech other topics

 

[fattdad]

stop cross-posting!

f-d

¡papá gordo ain’t no madre flaca!

 

[oldestguy]

The business is only as good as the reputation it has. You can assess this by taking some time to ask former clients for their frank comments. That may be sufficient for you to see what failings they had and what points made them a good firm to work with.

Having the right equipment is only part of the picture.

What is your reputation like with the possible clients in the area. That is a major point to consider. You may have to put in a few years to work it up before any profit is showing.

 

[dirtguy4]

You have a very interesting situation. Most Businesses are valued on their EBITDA which is annual Earnings Before Interest Taxes Depreciation and Amortization. This number comes right off the companies tax returns and then a multiplier is used. In times of good economics (which was in 2006) there was a multiplier of around 6 or 7. Now the multiplier is around 4 or 5. Some accountants will tell you it is as low as 1 or 2, but that isn't very realistic.

Your situation is different. Generally companies purchase the engineer. Without the engineer it is really just the capital assets that are left. I mean what good is a clinic without a doctor or what good is a law firm without a lawyer. Secretaries can't stamp and sign.....so really, all there is left is the capital assets and a little good will.