Impact of Economic Recession on the Valuation of Closely Held Construction Companies

This paper is a non-fraud forensic examination of how various business valuation measures of privately held construction companies were impacted during the great recession (2007–2009). We examine 1,037 transactions from IBA Market Data comparing the mean values of revenue, seller's discretionary earnings (SDE), price, price/sales, and price/SDE from 2005–2016. We performed one-way ANOVAs to examine differences in mean values for four three-year time periods. We performed a stepwise multiple regression for the dependent variable Price. The results of the ANOVAs show that revenue, price, price/sales, and price/SDE were lower during the 2008–2010 time period, all significant at the 0.01 level. The results of the multiple regression show revenue as a predictor of transaction price, with an adjusted R² of 0.559 and a p-value of 0.000. The results would be useful to valuation practitioners, and to academics using a case approach where valuation multiples must be selected.