A construction company can post a record profit one year, then a loss the next, with the same team and the same clients. A single poorly bid contract, a long winter, or a sector slowdown is enough. This makes its valuation more delicate than that of a service company or a retail business.

Added to this are elements rarely found elsewhere: work-in-progress where the final margin is still unknown, a backlog, a fleet of heavy equipment, contractual holdbacks, a Régie du bâtiment du Québec (RBQ) license attached to an individual, and bonding capacity that depends on the financial strength of the company and its owners.

This guide is intended for construction company owners preparing to sell, and for buyers who want to know what they are really buying. It covers general and specialized contractors in residential, commercial and institutional, and civil engineering sectors.

Summary answer: The value of a construction company is generally based on an EBITDA representative of the entire cycle (a 3- to 5-year weighted average, not the best year), multiplied by a factor often ranging between 2.5 and 5.5 depending on size, recurrence, and risks. This value must then be compared to the value of assets (equipment and working capital), which often serves as a floor. It must be adjusted for work-in-progress, loss-making contracts, overbilling, and transfer risks: RBQ license, bonding, and key personnel.

Why a construction company is valued differently

Four characteristics change how value is approached.

• Results are cyclical and irregular. A single year almost never represents the company's true capacity.

• One year's profit depends on estimates. Using the percentage-of-completion method, the recognized profit is based on the estimated cost to complete each contract. An optimistic estimate inflates the result; an error only comes to light at the end of the project.

• Assets are heavy. An excavation or civil engineering contractor may have several million dollars in equipment. The value of these assets limits or supports the price.

• Part of the value is not easily transferred. The RBQ license depends on a guarantor, bonding depends on personal guarantees, and relationships with project owners often depend on the owner.

Step 1: Choose the right methods

No single method is sufficient on its own. In practice, two are combined.

Capitalization of earnings

This is the most widely used method for SMEs: a normalized and representative EBITDA is multiplied by a multiple that reflects risk and potential. The result is an enterprise value, i.e., the value of operations excluding cash and debt.

For construction and subcontracting in Quebec, TRNSFR observes multiples in the range of 2.5 to 5.5 times EBITDA. The low end of the range corresponds to small companies highly dependent on their owner, with irregular or highly concentrated revenues. The high end corresponds to larger companies with a management team, recurring contracts (maintenance, service, framework agreements), and stable margins. See Business sales multiples in Quebec: industry and size guide.

Adjusted net asset value

The fair market value of operating assets (equipment, vehicles, buildings, normal working capital) is added up, and liabilities are subtracted. This method is particularly relevant in construction because a large portion of the value is tangible.

How the two methods complement each other

• If the value based on earnings significantly exceeds the value of assets, the difference represents goodwill: what the company’s ability to generate profits beyond its assets is worth.

• If the value based on earnings is lower than the value of assets, the company is not leveraging its assets well. Its value then approaches that of the assets, and a buyer will primarily pay for the equipment and the team.

• The liquidation value of the equipment (quick auction sale) serves as an absolute floor. This is also the figure that interests the lender.

For a quick initial estimate, TRNSFR's AI business valuation tool can serve as a starting point.

Step 2: Establish a representative EBITDA for the cycle

Start by normalizing each year

As with any SME, remove personal and non-recurring items and add what is missing: a market salary for the manager, a market rent if the warehouse or yard belongs to the seller, etc. See Financial statement analysis: keys to a successful purchase.

In construction, add two checks:

• claims and change orders recorded as revenue but not yet accepted by the client;

• work-in-progress with margins recorded optimistically, which must be re-estimated with the project manager.

Then calculate the cycle average

Use an average of the last 3 to 5 years, often weighted to give more importance to recent years. The most common weighting assigns a weight of 5 to the most recent year, 4 to the previous, and so on.

Numeric example: Construction Laurier inc.

A Lévis-based general contractor in commercial and institutional construction has annual revenue of about $14 million. The owner wants to sell based on his last year: $1,240,000 in EBITDA, multiplied by 4.5, for a total of $5,580,000.

The simple average is $880,000. The weighted average is approximately $913,000. By examining the contracts, the buyer also discovers that 2025 includes a $180,000 margin on a claim that the client is still contesting. Excluding this claim, 2025 EBITDA is $1,060,000, and the weighted average falls to approximately $853,000.

The difference compared to the EBITDA used by the seller, nearly $390,000, is worth between $1.35 million and $1.75 million on its own, at a multiple of 3.5 to 4.5.

Advice to the seller: If 2024 was impacted by an exceptionally loss-making contract, document it. A buyer may agree to remove a truly non-recurring loss from the average, but only with proof, and provided that the cause (poorly estimated bid, departed project manager) has been corrected.

Step 3: Analyze work-in-progress

Work-in-progress is the heart of due diligence for a construction company. Request the report of ongoing contracts as of the most recent date possible, contract by contract.

What the report must show

Item	Question to ask
Contract value, including change orders	Are the change orders signed by the client?
Costs incurred to date	Are all costs accounted for, including unreceived subcontractor invoices?
Estimated cost to complete	Who did the estimate, and when?
Projected margin at completion	Is it consistent with the bid margin?
Percentage of completion	Does it correspond to the actual progress of the site?
Amount billed	Is it ahead of or behind progress?

Overbilling and underbilling

When a company has billed more than the value of the work performed, this is called overbilling (excess billing). The company has collected money for work it still needs to perform. It is a debt to the client, even if it is not called that.

Overbilling is normal in construction, to a certain extent. But a seller who collects unusual overbilling just before the sale, and who keeps the cash at closing, leaves the buyer with work to do without the corresponding funds. Overbilling beyond the normal level should be treated as debt and deducted from the price, or integrated into the working capital target.

Conversely, underbilling (work performed but not yet billed) is an asset. Verify that it is actually billable: underbilling that accumulates on a contract may signal a cost overrun that the client will refuse to pay.

Loss-making contracts

If an ongoing contract is expected to end at a loss, the projected loss must be recognized immediately. In an SME, this is not always done. An unrecognized projected loss on an ongoing contract is deducted directly from the price: the buyer will have to absorb it.

Contractual holdbacks

Project owners often withhold a percentage of each payment (frequently 10%) until completion. Holdbacks receivable are an asset, provided they are recoverable: check the age of the holdbacks, uncorrected deficiencies, and disputes. Holdbacks payable to subcontractors are a liability.

Step 4: Evaluate the backlog

The backlog (signed but not started or not completed work) provides visibility into the coming months. A solid backlog justifies a higher multiple; a thin one, a lower multiple or a conditional payment.

What really matters

• Margin, not just volume. A $9 million backlog bid at a 4% gross margin is worth less than a $6 million backlog at 12%. Compare the bid margin to actual historical margins.

• Duration. How many months of revenue does it represent?

• Concentration. Does the backlog depend on one or two project owners?

• Signature. Distinguish between signed contracts, letters of intent, and "very likely" bids. Only the former really count.

• Bonding. Can contracts requiring performance and payment bonds be bonded under the new owner?

Bid success rate

Ask for the bid history from the last 2 or 3 years: number, value, success rate, bid margins. It reveals the quality of the estimating and the company's competitive position better than any speech.

Step 5: Evaluate equipment and maintenance investments

Have the fleet evaluated

The book value of equipment says almost nothing about its real value. Tax-amortized equipment may still be worth a lot; recent equipment may have been overpaid for. For a large fleet, have an evaluation done by a specialized appraiser, who will distinguish between:

• fair market value as a going concern;

• liquidation value (forced sale), often 50% to 70% of the former depending on the type of equipment and the market.

Also have major equipment inspected: usage hours, maintenance, deferred repairs.

Account for maintenance investments

EBITDA does not account for equipment replacement. An excavation company that has to replace an excavator and a truck every year has a recurring investment need that reduces the money actually available. Two companies with the same EBITDA are not worth the same if one has to invest $100,000 per year and the other $400,000.

Two approaches are possible: apply a lower multiple to the EBITDA of equipment-intensive companies, or evaluate based on EBITDA minus normalized maintenance investments. In both cases, check if investments in recent years have been lower than amortization: this is often a sign of an aging fleet, and a bill awaiting the buyer.

Leased equipment vs. equipment owned by the seller

If the equipment or the yard belongs to the seller personally or to another of their companies, specify whether it is included in the sale, leased to the buyer, or excluded. Essential equipment excluded from the transaction changes the value.

Step 6: Evaluate transfer risks specific to construction

These elements do not appear on financial statements, but they can cause a significant loss of value the day after closing.

The RBQ license and the guarantor

The contractor's license is held by the company, but it relies on one or more qualifying individuals who have demonstrated their skills (administration, project management, safety, execution of work according to sub-categories). If the selling owner is the only qualifying individual, their departure requires adding or replacing a qualifying individual. The addition or departure of a shareholder, officer, or qualifying individual must also be declared to the RBQ.

In a share purchase, the license remains with the company, but the new owner must ensure that a qualified individual will be in place, ideally before closing. In an asset purchase, the license is not transferred: the purchasing company must hold its own license for the required sub-categories. Plan for the lead times.

In 2026, the RBQ published draft regulations for comment that include a planned increase in the license security deposit (from $20,000 to $30,000 for specialized contractors and from $40,000 to $60,000 for general contractors). Verify the requirements in effect at the time of the transaction.

Bonding capacity

For public contracts and a large portion of commercial contracts, the company must provide bid, performance, and payment bonds issued by a surety (insurer or bonding company). The surety sets a capacity based on equity, working capital, history, and, very often, the personal guarantees of the owners.

Two consequences for value:

• The seller has often signed a personal indemnity agreement with the surety. They will want to be released from it at closing. The buyer will have to replace it with their own.

• An acquisition financed by debt reduces equity. If the purchase places a heavy debt burden on the company, the surety may reduce its capacity, and the company will no longer be able to bid on the same contracts. A buyer must meet with the surety before finalizing their financing structure.

Authorization from the Autorité des marchés publics

To enter into a construction contract or subcontract of $5 million or more with a public or municipal body, the company must hold an authorization from the Autorité des marchés publics (AMP). Verify whether the company holds one, whether it needs one for its order book, and what consequences a change in shareholders and officers will have. The AMP examines the integrity of the company and its officers and shareholders.

The CCQ and the workforce

If the company is subject to Law R-20, it is registered as an employer with the Commission de la construction du Québec (CCQ). Check the status of its file: monthly reports, inspections, wage claims, penalties. Also assess the stability of the workforce: in a market where skilled workers are scarce, a loyal team has real value, but they may leave with the owner.

Residential warranty

A new residential construction contractor must be accredited by Garantie de construction résidentielle (GCR) to offer the mandatory warranty plan. Verify the conditions for maintaining accreditation after the sale, as well as any ongoing claims on buildings already delivered.

Key personnel

Who estimates the bids? Who manages relationships with project owners? If the answer is “the owner,” part of the value will leave with them. The solutions are well known: an extended transition period, a consulting contract, a contingent payment linked to results, a non-compete agreement. See Non-compete clauses: why they are crucial in business sales.

Step 7: set working capital and debt

Most transactions are done on a “cash-free, debt-free” basis: the buyer pays the enterprise value, and the seller keeps the cash and pays off their debts. In construction, two points require special attention.

A normal working capital, not the closing-day figure

The working capital of a construction company fluctuates significantly depending on the season and the progress of job sites. The working capital target must be based on a 12-month monthly average and include holdbacks receivable and payable, overbilling, and underbilling.

Items treated as debt

In addition to loans and equipment leases, treat the following as debt:

• overbilling beyond the normal level;

• forecasted losses on ongoing contracts not yet accounted for;

• foreseeable costs for correcting deficiencies on delivered sites;

• outstanding claims from subcontractors or clients;

• accrued vacation and benefits owed to employees.

Step 8: reconcile methods and set a range

A serious valuation results in a range, not a single figure. It reconciles value based on earnings with asset value, then applies adjustments specific to the transaction.

Comprehensive example: Construction Laurier inc.

Asset-based check: the equipment fleet is valued at $1,800,000 as a going concern (approximately $1,150,000 in liquidation), and normal working capital at $900,000. Operating assets are therefore worth approximately $2,700,000. The value based on earnings ($2,985,000) exceeds this by only $285,000: goodwill is low. This is typical for a construction company whose value relies primarily on its equipment, its team, and its owner.

After negotiation, the parties agreed on a price of $2,700,000, plus a contingent payment of up to $400,000 over two years, linked to the collection of the contested claim and the margin realized on the order book. The seller remained for 18 months as the lead estimator and qualifying individual, the time needed for a project manager to become qualified with the RBQ. See Everything you need to know about earn-outs.

What the seller can do to increase value

Most of these measures take 12 to 36 months. Start early.

• Qualify a second RBQ individual among your management team.

• Train an estimator and entrust them with relationships with at least some of the project owners.

• Document work in progress with a reliable monthly report, costs-to-complete reviewed by project managers, and signed change orders.

• Develop recurring revenue: maintenance contracts, after-sales service, framework agreements.

• Renew equipment regularly rather than deferring investments in the final years.

• Separate real estate from operations and prepare a market lease if you are keeping the yard or warehouse.

• Meet with your surety to find out how they will handle a change of ownership.

• Produce quality financial statements (ideally a review engagement if your surety does not already require it).

For overall preparation, see the sale preparation checklist and The ultimate guide to selling a business.

Checklist: valuing a construction company

☐ Financial statements for the last 5 fiscal years and interim statements obtained

☐ Normalized EBITDA for each year (market salary and rent, non-recurring items)

☐ Claims and unaccepted change orders removed from revenue

☐ Weighted average EBITDA calculated over the cycle

☐ Report on work in progress analyzed contract by contract

☐ Overbilling, underbilling, and loss-making contracts evaluated

☐ Holdbacks receivable and payable verified

☐ Order book analyzed: margin, duration, concentration, signed contracts

☐ Bid history and success rates obtained

☐ Equipment fleet evaluated (going concern and liquidation) and inspected

☐ Maintenance investments normalized

☐ RBQ license, sub-categories, and qualifying individuals verified

☐ Bonding capacity and indemnity agreements discussed with the surety

☐ AMP authorization verified if the company targets public contracts of $5M or more

☐ CCQ file and, if applicable, GCR accreditation verified

☐ Key personnel and transition plan established

☐ Working capital target based on a 12-month average

☐ List of items treated as debt established

☐ Value based on earnings reconciled with asset value

The most frequent traps

• Valuing based on the best year. In construction, an exceptional year is often followed by a difficult one.

• Trusting the percentage of completion without verifying it. An optimistic estimate of the remaining cost creates a profit that will vanish at the end of the project.

• Forgetting overbilling. The buyer inherits the work to be done, while the seller leaves with the money.

• Paying for an unresolved claim. A contested claim is not revenue; it can be the subject of a contingent payment.

• Ignoring maintenance investments. An aging fleet is a hidden debt.

• Neglecting the RBQ license. Without a qualified individual, the company can no longer execute certain work.

• Discovering the surety's requirements after closing. Reduced bonding capacity can lead to the loss of a portion of the order book.

• Underestimating dependence on the owner. Project owners trust a person, not a company number.

For other common mistakes, see The 5 most frequent mistakes during a business transfer in Quebec.

Can you value your construction business yourself?

For an initial idea, yes. An owner or buyer who knows the sector can calculate the weighted average EBITDA, apply a multiple range, and compare the result to the value of their equipment. The TRNSFR EBITDA calculator and business valuation checklist help structure this work.

To negotiate, obtain financing, or resolve a family transfer, call on a professional. A Chartered Business Valuator (CBV) or a CPA who knows construction will analyze the work in progress, normalize results, and produce a report that the bank and the surety will accept. An equipment appraiser will determine the value of the fleet. Your lawyer or notary, along with the surety, will organize the transfer of the license, bonds, and authorizations.

Sources

• TRNSFR, Business sales multiples in Quebec: industry and size guide

• Régie du bâtiment du Québec, Update your file

• Régie du bâtiment du Québec, Professional qualification of contractors: publication for comment of two draft regulations (February 25, 2026)

• Autorité des marchés publics, Thresholds and categories of public contracts

• Commission de la construction du Québec, Being an employer

• Garantie de construction résidentielle, Accreditation

This article provides general information and does not replace a business valuation or tax, accounting, or legal analysis tailored to your situation.