Zweig Group recently released its 2018 Valuation Survey. This survey has been a staple of industry-leading firms for more than 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.

This is why this survey and the corresponding report are so valuable to the industry as a whole. 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. 

Six calculated value ratios determine Zweig Group’s Z-Value formulas. Four values (Z1, Z2, Z3, Z4) are calculated based on the reason for the valuation. For example, the Z3 formula is determined by valuations that were done explicitly for internal ownership transitions. Each Z-Value represents a different cross section of the survey sample and indicates value based on different circumstances.

Statistically derived Z-Values facilitate comparisons between different firms and between multiple valuations of the same firm. Raw Z-Values can be adjusted upward or downward, taking into account the effects of relevant variables as indicated by the survey results or the specific circumstances of the reason behind the valuation.

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 five out of the six value ratios calculated. The only ratio that lagged the overall median was the Value-to-EBITDA ratio, which came in at 3.34, where the overall median was 3.80. 

Historically, with some exceptions, larger firms were generally 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 (i.e., growth is good!). 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.

Though this survey provides insight into some of the nuances of firms and the relative value assigned to a firm, formal appraisals are still the most accurate method of value determination. An appraiser who is not familiar with the nature of the AEC industry can miss some important valuation variables when only using formulas or models. Standard, off-the-shelf financial models are often based on analyses of gross sales and ratios driven off of gross sales. AEC firms often have considerable amounts of pass-through revenue (subconsultants’ fees and reimbursable expenses) that really do not accrue to the firm. Therefore, all modeling and financial analysis needs to be based on net service revenue.

Other important variables include backlog (work actually under contract), sales (work won but not under contract), and proposals outstanding. All of these are standard components of Zweig Group’s Z-Values and bring a consistency to value determinations year over year.

For more information, check out the 2018 Valuation Survey at or contact

Will Swearingen is director of Research. He can be contacted at