Evaluate whether your construction business is positioned for a clean transaction — from WIP accounting accuracy and bonding transfer provisions to operational depth and key employee retention.
Run the DiagnosticConstruction company transactions are more operationally intensive than most middle-market exits because the core assets — active contracts, bonding programs, and project management teams — are not static assets that transfer automatically with the legal entity. Each active project represents a bilateral commitment with specific contract provisions, change order history, and remaining cost-to-complete estimates that a buyer must underwrite individually. The bonding program that allows the company to pursue and perform bonded public and institutional work is underwritten to the current owner's financial profile and may not transfer without renegotiation. The project management team whose relationships with clients, subcontractors, and inspectors determine whether projects close profitably may have no formal employment agreements, creating retention risk in the transition period.
Exit Readiness evaluates whether the construction company has addressed these structural complexities before entering a sale process. On the financial side, this means WIP schedules that have been reviewed by a CPA familiar with construction accounting, retainage balances that are current and collectible, and normalized EBITDA documentation that adjusts for above-market owner compensation and owner-dependent revenue. On the operational side, it means documenting the project management processes that produce consistent results, identifying key employees and implementing retention mechanisms, and confirming that equipment titles, subcontractor liens, and contract documents are complete. On the legal side, it means reviewing client contract assignment provisions, evaluating whether bonding can transfer or be re-established, and confirming that prevailing wage obligations on government projects are fully documented.
Construction companies that complete exits with clean terms have typically spent twelve to twenty-four months preparing before engaging a sell-side advisor or initiating buyer conversations. The Exit Readiness diagnostic identifies where that preparation stands and what remains. The highest-impact preparation steps are financial: engaging a construction-experienced CPA to review WIP schedules, normalize EBITDA, and produce quality of earnings documentation that will hold up in buyer due diligence. Companies that enter a process with defended financial statements close faster and with fewer price adjustments than those where buyers discover WIP accounting inconsistencies during diligence.
Operational preparation is equally important: the diagnostic evaluates whether key project managers and superintendents are under employment agreements with non-solicitation provisions, whether the company has a documented org chart with roles that operate independently of the owner, and whether backlog quality — contract type, margin visibility, client concentration — supports the revenue projections in the buyer presentation. Finally, legal preparation includes confirming that all equipment is owned free of undisclosed liens, that subcontractor and supplier relationships are current and documented, and that the company's licenses, certifications, and safety records are current across all jurisdictions where it operates. Companies that address these items proactively are positioned to control the sale process rather than respond to buyer concerns.
The diagnostic evaluates the financial, operational, and legal conditions that determine whether a construction company is prepared to complete a transaction — WIP accounting accuracy and whether schedules have been reviewed by a construction-experienced CPA, bonding program transfer provisions and whether the surety will release bonds to a new ownership entity, key employee retention risk including whether project managers and superintendents have employment agreements and competitive compensation, equipment documentation including titles and lien clearances, and the completeness of contract documentation for all active and backlogged projects.
Surety bonds are issued to a specific legal entity and do not automatically transfer to a new owner in most acquisition structures. Buyers must either qualify for new bonding under their own surety relationship or negotiate with the seller's surety for a release and re-issuance. Companies that enter a sale process without understanding their bonding transfer provisions can face delays or failed transactions if the buyer cannot replicate the bonding program. The Exit Readiness diagnostic evaluates whether the owner has discussed transition planning with the surety underwriter and whether the company's financial metrics support an independent bonding program for the acquiring entity.
Retainage — amounts held by project owners until project completion — represents earned revenue that has not been collected. High retainage concentrations on large projects create post-close collection risk that buyers discount from enterprise value or seek to exclude from the acquisition perimeter. The Exit Readiness diagnostic evaluates retainage as a percentage of total receivables, the aging of open retainage balances, and whether disputed retainage exists on completed projects. Companies that proactively close out completed projects and collect retainage before entering a sale process present cleaner balance sheets and reduce the holdback provisions buyers seek.