How to appraise a soil testing/geotech eng business 2

[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

 

[BigH]

I haven't been involved with something like this - perhaps Ron can provide some good advice. But I'll give my 2 cents worth.
1. Where are you located? Big market or small market? What other geotechnical firms are located in your area? Good ones or so-so ones?
2. What type of business are you looking to get into? Run of the mill type soil investigations (retail plazas, apartment buildings,) or are you looking to get into "bigger things" such as steel mill plants, electrical generation plants, mining, etc.
3. What is the reputation of the firm you are looking into purchasing? I realize that at present there is no work and no engineers, but when the economy picks up, older clients will see the firm as "name recognition" and this would be an plus.
4. Does the current owner have any 'steady' clients - yes, they may not be doing much now, but when they pick up will they come to this particular firm to do business? Can or will he consult with you when needed and if he is able?
5. What potential liabilities does the firm have on past jobs? Has it been sued before? Would you be liable for any such potential liabilities?
6. How good are the archive reports/projects? I worked for an established firm in Toronto and when proposal requests came in, say, for Sarnia Ontario, we had dozens of geotechnical reports from throughout the whole Sarnia clay plane to rely on - in addition to new investigations. Many never really appreciate the value of "history".
7. What is the level of the lab equipment. Basic? or can it carry out triaxial tests with pore pressure measurements? Triaxial permeability measurements? Consolidation testing? Direct shear? Is the lab testing equipment computerized or would manual readings be required? Would the lab do aggregate testing for concrete and hot mix asphalt? Concrete? Asphalt? If you do take over the company, do you have someone to run the lab? Good experienced lab manager and testing personnel are hard to come by I would think and they are the foundation of your work - if the lab tests are sub-par, your work will suffer.
8. There are also the intangibles - insurance, regulations, etc. the new Obama-care.

Just a few thoughts, which I am sure you have already looked into . . .

 

[iandig]

I have been in this situation before, both advising in a purchase of a laboratory, and then subsequently in trying to turn it around into a successful operation (single lab in the wrong location, no work and making a loss for 5 years with only 4 staff - combining it with an exisitng lab from a different operation until a year later, 4 labs, across the UK, fully accredited for a much wider range of testing - all before the reccesion however!).
I concur with the points raised by BigH, a key factor must be the geographical location of the business. If it is in the wrong area, then no matter how good the service you provide, the staff you employ or the equipment you use, if you have no Clients you have no business.
As for the asst based approach, not only must you consider what equipment is there, but also that testing equipment needs to be calibrated and serviced on a regular basis. Check the equipment and calibration records before you just look up what kit is there and what the purchase price of the kit would be to replace.
I would also recommend that you review the content of the labs technical library, this will give a very clear insight into the quality of the business. If it is all photo-copies, of old standards, poorly organised I would strongly suggest that this reflects the general attitude of the previous operator. However if there is a really good library, kept up to date with evidence of technical amendments then I would take a lot of comfort from this.
At the end of the day, however, opening a lab with no work is like opening a shop with no stock.
Check the local market and the competitors before spending any money.

 

[oldestguy]

See your other cross post for my comments.

Mot member here look at several rooms.