By Tyler Thompson

Zweig Group recently released its 2019 Valuation Survey of AEC Firms, a staple of industry-leading firms for over 25 years. When it comes to estimating the value of a business enterprise, it is important to understand exactly what is being valued and for what purpose. Without an established market in which a firm’s shares are actively traded, an appraiser can only estimate the market value through the application of pertinent measures and indicators of Value from relevant data.

Therefore, this survey and its corresponding publication are so valuable to the AEC industry. This compilation of data is intended to provide some benchmarks and metrics that allow firms to see how their own Value ratios stack up against industry norms.

Zweig Group calculates six different Value ratios that determine Zweig Group’s Z-Value formulas. These formulas determine the four Z-Values (Z1, Z2, Z3, & Z4) that are based on different criteria within the data set. For example, while the Z1-value is based on all valuations, the Z3-value is calculated by filtering the sample down to only the firms that had a valuation performed for an internal ownership transition.

These statistically-derived Z-values may facilitate comparisons between different firms and between multiple valuations of the same firm. Raw Z-values can be adjusted upward or downward considering the effects of these variables as indicated by the survey results. Variables include but are not limited to purpose of valuation, type of firm, age of firm, and size of firm.

In general, valuations conducted for external purposes, such as a possible merger or sale, tend to yield higher Value ratios than those conducted for internal use (buy/sell agreements between stockholders, internal ownership transfer, etc.). Valuations performed in connection with a potential or actual sale or merger resulted in higher median values for all six Value ratios.

Similarly, median Value ratios determined by independent business appraisers were generally higher than the field (inside or outside accountants, firm principals, management consultants, etc.). Only the Value per net service revenue ratio for this category at 0.52 failed to exceed the overall median of 0.53. Formal appraisals are the most accurate method of valuing a firm, which is good news for firms considering the historical survey results.

Younger firms, founded after the year 2000, were valued higher from a Value to net service revenue perspective. This is likely because these firms were growing at a high rate and were also projected to continue to grow revenue, EBITDA, profit and backlog faster than more mature firms over the next few years.

Historically, we have found that larger firms were typically valued higher from a Value to EBITDA ratio standpoint than smaller firms. This indicates that as firm size grows, so does the relative value of the underlying assets or equity of the firm. Conversely, from an Equity value to book value perspective, larger firms had a lower multiple, likely because larger firms were carrying more underlying assets and owner equity than smaller firms.

Tyler Thompson is Zweig Group research manager. He can be contacted at