Industrial services business valuation

Not all service revenue is equal

The first thing we do is pull revenue apart by type of work, because each type behaves differently and a buyer will value each differently. A business that looks like a steady maintenance contractor is sometimes a shutdown business with a small maintenance base, and the reverse.

Planned maintenance is where the strongest value sits, because it repeats and because the contractor's people come to know the plant. Reactive work for the same clients is the next layer: less certain, but closely tied to the installed base the contractor already services. Shutdowns and projects are real earnings, but they need to be averaged over a cycle rather than taken from one good year.

Shutdown work: big months and quiet ones

Refineries, smelters, power stations, mineral processing plants, paper mills and large food plants take scheduled shutdowns to inspect, repair and replace equipment that cannot be touched while it runs. A shutdown contractor may mobilise hundreds of workers for a few weeks, then go quiet. One year with two major shutdowns can double EBITDA; the next can halve it.

So we ask for the shutdown calendar for each client: which events are confirmed, which are expected, how often each plant's major outage recurs, and how often dates have slipped. We look at margin on the labour surge, because many shutdown crews are labour hire or casual and the margin per hour is what counts. Then we form a view of shutdown earnings across a full cycle, not a single year.

Deferral is the main risk. Asset owners under cost pressure push shutdowns out, shorten them or bring them in house. A contractor whose shutdown work is spread across several clients and industries is less exposed to one owner's budget decision than one tied to a single site.

Maintenance agreements and panels: what is committed?

Many industrial clients appoint contractors to a panel or a framework agreement, then issue work through purchase orders. A panel place is valuable because it is hard to get, but it does not commit the client to any volume. We follow revenue from the agreement to the work actually issued, and look at how long each client relationship has run and how many times it has been renewed.

We read the terms that change value: term remaining and options, rate review mechanisms, KPIs and abatements, termination for convenience, change of control, and liability. A five-year agreement with a reputable asset owner, renewed twice, rates indexed to wages, and no change of control trigger, is a strong asset. A panel appointment due for retender in four months, with the incumbent's main contact about to retire, is not.

Timing also matters. If the valuation date falls just before a major retender, a buyer will price the outcome as uncertain. Where the valuation is for a sale, it can be worth knowing that before going to market. See business sale valuations.

Technicians, licences and the people the client asks for

Industrial services businesses sell skilled hours. Their capacity is the number of qualified technicians they can put on a job, and those qualifications usually belong to the individual. High risk work licences under Schedule 3 of the model Work Health and Safety Regulations, for crane and hoist operation, rigging and dogging, forklift operation, scaffolding and pressure equipment operation, are held by people, not companies. So are electrical licences issued by the states and most vendor and site competencies.

If three people hold the licences that a key client's work depends on, the business is exposed to those three people. We look at the employee list with roles, licences, tickets and expiry dates, the apprentice and trainee pipeline, and how long key technicians have stayed. We also look at how the workforce is engaged: employees under an award or enterprise agreement, casuals, or labour hire, and what each costs.

Utilisation is the most telling operating number. Billable hours as a share of paid hours, by technician and by month, shows whether the business is running at capacity or carrying idle labour. Charge-out rates compared with fully loaded labour cost show the margin on every hour sold.

Safety record and prequalification

Asset owners carry their own duties for anyone working on their plant, so they prequalify contractors before letting them on site. Certification to ISO 45001 for occupational health and safety, and ISO 9001 for quality, is commonly asked for. Prequalification platforms, site inductions and contractor audits follow.

We ask for injury frequency rates over several years, the incident register, audit results and any regulator notices or prosecutions. A long, documented record without serious incidents is part of what a buyer pays for, because it keeps the business on approved lists. A recent serious incident or an open investigation is a risk we reflect, in the earnings, the rate, or a plain statement of the matter in the report.

The owner as chief estimator

In many industrial services businesses the founder still scopes the jobs, prices the shutdowns and holds the relationship with each client's maintenance manager. Estimating is a skill: price a shutdown too low and the margin disappears, too high and the work goes elsewhere. If that skill sits with one person, a buyer is buying a business that may price differently without them.

We look at who does the estimating, who the clients deal with, and whether there is a manager or estimator who already does much of the work. A planned handover period, documented pricing tools and a second person in each client relationship all reduce the discount. If the owner is planning to step back, a succession valuation a year or two ahead gives time to fix this before it costs money.

Tooling, test equipment, vehicles and the workshop

Hydraulic torque and tensioning tools, line boring and machining kits, laser alignment, vibration analysis and inspection equipment are expensive, need calibration, and date as technology moves on. Service vehicles fitted out for field work add to the capital base. These assets are needed to earn the income, so they sit inside the business value rather than on top of it. What matters is whether the earnings are struck after a realistic level of spending to keep them current.

Workshops and yards are often owned by a related entity. We value the business as if it paid a market rent and treat the property separately. A formal plant and equipment valuation is a separate discipline; where one exists we can use it. See how plant and equipment affects business value.

Turning the analysis into a value

Most are valued by capitalising maintainable earnings: recurring maintenance at close to its current level, reactive work averaged over several years, shutdown and project earnings averaged over a cycle, after normalising the owner's pay and any related-party costs. The capitalisation rate reflects contract tenure, client concentration, technician depth, safety record and owner dependency. Our general approach is in how we value industrial businesses.

To see where your business sits, check the turnover bands on our pricing page or ask for a fixed quote. Where two shareholders are separating, our shareholder valuation page explains how an interest in the business is valued.