M&A Insight: Midmarket Buyers – Pricing in a Boom

In boom periods, vendors often try to price their business off current or expected peak‑cycle earnings, rather than what the business earns in a normal year. Mid‑market buyers push back on this, especially in engineering, fabrication and industrial services where work is cyclical, competition is strong, and the core technologies — cutting, bending, welding, coating — are common and easy for competitors to replicate.

Australia has seen this pattern again and again: the mining booms, the NSW and Victorian infrastructure waves, and now the data centre construction boom and the anticipated boom with the 2032 Olympics build‑out. Each cycle temporarily lifts utilisation, margins and backlogs — but buyers know these conditions don’t last once project timing settles or labour availability changes.

Vendors often point to strong customer relationships and long‑standing supply agreements as justification for higher valuations. Buyers dig into this carefully:

• How sticky are these relationships when competitors sharpen their pricing?

• Are supply agreements truly strategic, or just commercial arrangements that can be retendered?

• What stops customers from insourcing, dual‑sourcing or shifting work to another supplier?

In many cases, loyalty is transactional and not structural — and buyers price that risk.

Boom times can also make a business look stronger than it really is. Big project spikes, heavy overtime revenue, higher day rates and a backlog inflated by shutdowns or major capital programs can all push earnings above what the business normally produces. Buyers strip out these “boom effects” and focus on what the shop earns in a steady, average year, not the busiest year on record. They also factor in risks like relying too heavily on one or two major customers. And instead of paying a high price upfront, buyers often use earn‑outs — paying part of the price later only if the business keeps performing well, it’s a way to share the risk fairly.

The valuation conversation is shifting

Buyers now want proof of durable capability, repeatable revenue, and customer relationships that genuinely hold up under pressure — not just strong results during a favourable market. In this environment, acquirers are pricing risk, not optimism, and are pushing back against valuations built on boom‑time performance rather than long‑term fundamentals.