$10 Million of Work Already Won But Priced at Just 2.25x

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This week's business is a 52-year-old architecture firm in Houston, and it comes with two eye-catching facts. Its revenue just tripled from $1.2M to a $4.2M run rate, after a big bond-funded award. And it's sitting on $10 million of contracted work it hasn't even invoiced yet.

That sounds like a premium business. It's priced at about 2.25x earnings — low.

The gap between those impressive numbers and that modest price is this week's lesson, and it's essential if you run any kind of project business such as architecture, construction, engineering, custom manufacturing, or government contracting. Because in a project business, last year's revenue is almost the wrong thing to look at. Two other numbers matter more.

The Listing

Lesson 1: In a project business, backlog is king.

Most businesses earn revenue in a steady stream, customers buy every month, and last month predicts next month. A project business is different. Its revenue arrives in lumps: you win a job, you deliver it, it ends, and you need the next one. The stream is really a series of events.

Which is why the most important number for valuing a project business isn't last year's revenue. It's backlog, work you've already won and put under contract but haven't yet delivered or invoiced. This firm has about $10 million of it, which at its current pace is roughly two-plus years of work already in hand.

Backlog is so valuable because it's de-risked future revenue. It's not a projection or a hope, it's contracted. A buyer of a project business looks at backlog before almost anything else, because it answers the scariest question about a lumpy business: where's the work coming from after I buy it?

Your move: if your revenue is project-based, your backlog is a huge part of your sale value, arguably more than your trailing revenue. Build it, document it, and make sure it's genuinely contracted (not merely "likely" or a verbal nod). A firm walking into a sale with two years of contracted work commands far more than an identical firm that starts every January at zero.

Lesson 2: But is your current revenue a base or a peak?

Now the other side. That revenue tripled "following a large bond-funded award." That's a spike off a single event, not necessarily a new permanent level. And the EBITDA a buyer is being asked to pay a multiple on is presumably measured at that elevated run rate.

So the buyer asks: once this big award is delivered, does revenue stay near $4.2M or drift back toward the $1.2M it was before? The $10M backlog partly answers it (there's real runway), but the deeper question remains: what's the sustainable level once the bulge works through the system?

Never value a project business off its peak year. Value it off the sustainable base plus the visibility that backlog provides. Pricing off a temporary high is how sellers set a number the market won't meet.

Your move: if a big win spiked your revenue, know that a buyer will try to normalize it, separating what's repeatable from what was one-time. The more you can show the elevated level is a durable new base (repeat clients, a recurring pipeline, diversified sources) rather than a one-off bulge, the more of that peak you'll actually get paid for.

One quick question on this week's Owner Pulse:

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Lesson 3: Read the transaction the owners actually want.

Here's a detail that explains the whole deal. Both owner-principals intend to stay in project-delivery roles, and they're explicitly "seeking a larger platform." This isn't a clean exit, it's a merger or tuck-in.

Why does that matter? Because it tells you exactly where the value lives. The 25-to-30-year district relationships and the delivery capability are held by the two principals which is precisely why they need to stay. A buyer here isn't purchasing a self-running business; they're absorbing a team, a set of relationships, and a backlog into a bigger firm that can bid larger work.

And that is a large part of why the multiple is only ~2.25x. The value is contingent on the very people selling it. Take the principals away and much of the firm's worth goes with them, so this can't be priced or structured like a business that runs on its own.

Your move: if your business's value is inseparable from you, understand that a "sale" may really be a merger where you stay on and those carry lower multiples and longer commitments than a clean, transferable business. If what you actually want is to cash out and walk away, you have to make yourself removable first. That work happens years before the deal, not at the closing table.

Lesson 4: Know what external switch controls your pipeline.

One more: the firm's growth is "tied to school bond programs passing in the region." So its future work depends on voters approving public bonds which is cyclical, politically contingent, and entirely outside the firm's control. It's real demand, but it's demand governed by an external switch.

Your move: know what outside force your pipeline depends on such as bond cycles, government budgets, one industry's health, one big program and, where you can, diversify so your future work isn't hostage to a single lever you don't control.

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The through-line.

This is a strong, deeply rooted firm with half a century in business, blue-chip client relationships, and an enviable $10M of contracted backlog. But it's priced modestly because a buyer sees past the impressive numbers to two facts: the revenue spiked off one award, and the value is tied to two principals who plan to stay.

The lesson for your own exit, especially in a project business is that your sale value is driven far less by last year's revenue than by two things: how much work you've already won and can hand over (backlog), and whether that work can be delivered by someone other than you. Build backlog, and build a team that can deliver it without you. Do one without the other, and you end up exactly where these owners are: genuinely valuable, but only if you stick around.

To your future exit,

Andrew
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