A lower-middle-market electrical contractor is usually bought with a senior cash-flow term loan and a revolver, or unitranche where more debt is needed, with equity, rollover or a seller note beneath. Senior cash-flow lenders commonly lend 2x to 3.5x EBITDA, and service and maintenance work earns the most credit. Lenders underwrite the mix of service and project work, the work-in-progress schedule and backlog, who holds each license, whether the estimators and foremen stay and, for bonded work, whether a surety will back the new owner. Acquisition debt weakens what a surety measures, so financing and bonding are planned together.
- Usual structure
- Senior term loan and revolver, or unitranche; equity, rollover or a seller note beneath
- Senior leverage
- Commonly 2x to 3.5x EBITDA; unitranche stretches further
- The document that decides a project shop
- The work-in-progress (WIP) schedule, with backlog and job-cost history
- The second underwriter
- The surety, for any company that bids bonded work
- The day-one question
- Who qualifies each license after closing
Service shop or project shop
"Electrical contractor" covers businesses a lender underwrites very differently. A service business running trucks to repair calls and maintenance contracts earns steadily from many customers. A project business bidding tenant improvements and new construction for general contractors earns in large, uneven pieces from a few relationships, with cash tied up in receivables and retainage. Most companies are a mix, and the proportions decide how much debt the earnings can carry.
| Type of work | How it earns | How a lender reads it |
|---|---|---|
| Service and repair | Many small tickets, paid quickly | The steadiest line; valued if call volume holds across years |
| Maintenance and facility contracts | Recurring work under master service agreements with plants, campuses and property owners | Close to recurring revenue, if the agreements survive a change of control |
| Commercial and industrial projects | Bid or negotiated work, billed by progress | Lumpy and concentrated in a few general contractors; underwritten on backlog, margin history and receivables |
| New residential construction | Per-unit wiring for builders | The most cyclical; tied to housing starts and a handful of builders |
| Specialty (low voltage, controls, data centers, EV charging, solar) | A mix of projects and service | Assessed on its own margins; newer lines need a track record before lenders give them full weight |
The buyers at this size are private equity platforms building a regional electrical or multi-trade services group, strategic contractors adding a market, independent sponsors, and management teams buying out a founder. Platforms prize service and maintenance revenue for the same reason lenders do: it recurs. A company this size has usually outgrown SBA financing, whose 7(a) loans go up to $5 million.
Backlog and the work-in-progress schedule
For any company doing project work, the WIP schedule is the most important document in the file. It lists every open job with contract value, estimated cost, cost to date, billings to date and expected profit. Read properly, it tells a lender whether the income statement is real, whether cash has been collected ahead of the work, and whether margins are holding.
| Term | What it means | What a lender reads into it |
|---|---|---|
| Over-billing | Billed more than the work done so far | Cash collected for work still to be done; after closing, the buyer does that work without the cash |
| Under-billing | Work done but not yet billed | Sometimes timing; sometimes overruns or change orders the customer has not agreed |
| Profit fade | A job's expected margin falling as it nears completion | Optimistic estimating; lenders compare estimated and final margins on completed jobs |
| Backlog | Signed work not yet performed | Visibility for the first year, if its margin is in line with history |
| Retainage | Part of each progress bill held until the job is done | Earned but slow cash, often excluded from a borrowing base |
A simple case shows why over-billing matters in a purchase. A job with a contract value of 1,000 and estimated cost of 800 is half complete once 400 of cost has gone in, so the company has earned 500. If it has already billed 600, 100 of cash has come in for work not yet done. If the seller keeps that cash, the buyer finishes the job with its own money. Buyers handle this through the price or the working capital peg, and lenders check that they have. Quality of earnings work on a contractor spends much of its time here.
Ask for the WIP schedules at the last few year-ends and compare the margins they predicted with the margins the jobs made. That comparison is the lender's test of the estimating.
Bonding: the second underwriter
Public work and much commercial work require performance and payment bonds. The surety underwrites the contractor much as a lender would, looking at working capital, net worth, the WIP schedule and the owners' finances, and takes an indemnity from the owners. A bonding line does not pass to a buyer automatically. The surety re-underwrites the company under its new owner.
The tension is that acquisition financing weakens what a surety measures. Debt reduces working capital, and the goodwill created by the purchase is typically excluded from the net worth a surety counts. A heavily leveraged purchase can shrink bonding capacity just as the buyer needs it to keep bidding. Buyers of a bonded contractor should get a surety's indication before the structure is final and shape it around the answer: more equity, working capital left in the business, lighter amortization, or subordinated debt on terms the surety accepts. Jobs already bonded at closing need a plan too; the seller's indemnity often stays on those jobs until they finish unless the surety agrees otherwise.
Licenses, key people and the union question
Electrical work is licensed at the state or local level, and a contracting company usually operates under licenses held by qualifying individuals, often jurisdiction by jurisdiction. In a founder-run company the founder may hold several. A lender will ask who qualifies each license the day after closing, and many states require the qualifier to be an officer or employee. Buyers commonly keep the founder on through a transition, but lenders want a second qualifier in place.
The crews are the capacity. Lenders look at the number of licensed journeymen and apprentices, tenure and turnover, and above all at the estimators, project managers and foremen who win and run the work. If one estimator produces most of the bids, that person matters to the credit nearly as much as the founder, and retention agreements and rollover equity are how buyers answer it.
Union contractors raise one more question. Contributions to a multiemployer pension plan can carry withdrawal liability, and construction has its own rules about when it is triggered. Whether the deal is an asset or stock purchase, and whether the buyer keeps contributing, both matter; lenders will want counsel's read. Public work adds prevailing-wage and certified-payroll compliance to the diligence list.
Working capital and the capital structure
General contractors pay slowly, often only when they are paid, and hold retainage until close-out. A project-heavy contractor carries large receivables and needs a revolver to fund payroll and materials. Asset-based lenders typically advance 80% to 90% of eligible receivables, but retainage, receivables more than 90 days past invoice, and concentration above a cap, commonly 20% to 25% of eligible receivables for any one customer, fall out of the base. For a company working for a few general contractors, that cap binds quickly. The acquisition must leave enough working capital to run the backlog it is buying; see working capital at close.
| Layer | Role in an electrical contractor acquisition | Watch for |
|---|---|---|
| Senior term loan | Funds most of the price on normalized EBITDA; commonly 2x to 3.5x | Covenants tested through a slow project year |
| Revolver | Receivables, retainage timing and materials | Borrowing-base exclusions and concentration caps |
| Delayed-draw term loan | Add-on contractors in new markets or trades | Pro forma leverage tests on each add-on |
| Unitranche | One loan where more leverage is needed | A higher blended rate, and the surety's view of total debt |
| Seller note or earnout | Bridges a price that depends on backlog converting | Subordination to the senior lender and the surety's view |
| Equity and rollover | The cushion lenders and the surety both measure | Keeps key sellers invested |
Asset or stock purchase changes more in contracting than in most industries. In an asset purchase, contracts in progress must be assigned, usually with customer consent; the buyer's company needs its own licenses and new bonds; and past-job liabilities generally stay with the seller. In a stock purchase, contracts, licenses and bonding relationships stay with the company, along with warranty and defect claims on past work. See asset purchase vs stock purchase, and for add-ons, financing add-on acquisitions.
What goes in the file
For the term loan, lenders start with the P&L, the balance sheet and the debt schedule, with a year-to-date P&L and an AP aging where available. The revolver adds an AR aging by customer with days outstanding. The acquisition adds the target's latest full year of figures for every company being bought, never an older year, and the letter of intent. For an electrical contractor, add:
- WIP schedules at the last few year-ends and the latest month-end.
- A backlog report with expected margin by job, and job-cost reports on completed jobs.
- Retainage shown separately in the AR aging.
- Revenue by customer and by type of work for each year, and any master service agreements.
- Licenses and qualifiers by jurisdiction, and the surety's bonding letter.
- An equipment and fleet list, and union agreements and pension plan information if any.
Sureties often want financial statements reviewed by a CPA, and lenders value them too; see reviewed vs audited financials. Senior bankers run every Midas Partners engagement. Once the documents are in, Midas Partners builds the financing model, lender presentation, blind teaser and underwriting memo in a day; built by hand the same package takes at least a week. Software does the analyst work and a senior banker checks every page before the client approves it. See the package.
Common questions
- Does the seller's bonding line transfer to the buyer?
- No. The surety re-underwrites the company under its new owner, and the new owners sign the indemnity. Because acquisition debt and goodwill weaken the measures a surety uses, get its view before the financing structure is final.
- What happens to jobs that are half finished at closing?
- They are on the WIP schedule. If the company has billed ahead of the work, the buyer inherits the work without the cash, so the price or the working capital peg should account for it. In an asset purchase each contract also has to be assigned.
- Can I buy an electrical contractor if I am not a licensed electrician?
- Often, yes, if licensed qualifiers will be in place from day one and the managers who estimate and run the work are staying. Lenders assess whether the buyer can manage the business, not whether the buyer can pull wire.
- Do lenders prefer service work or project work?
- Service and maintenance revenue is steadier and supports more debt for the same earnings. Project work is financeable, but lenders size it on backlog, margin history and the WIP schedule, and watch concentration in a few general contractors.
- Can an earnout bridge a price based on backlog?
- Yes, with conventional acquisition debt, provided it sits behind the senior lender and is paid only while covenants are met. The surety will want to see it too.