An investor in the UK construction sector has warned that overreliance on EBITDA as a valuation benchmark is increasingly leading to failed transactions and last-minute price renegotiations.
Bradley Lay, co-founder of Peak Capital Group, said the valuation gap between sellers and buyers has widened sharply over the past 18 months as higher borrowing costs force acquirers to scrutinise real profitability and cash flow.
“EBITDA is still being used as the headline valuation metric in construction,” Lay said, “but buyers are underwriting deals on net profit before tax and cash. That disconnect is now one of the most common reasons deals fall over.”
Lay argued that EBITDA routinely excludes costs that are fundamental to a company’s financial sustainability, particularly in asset-heavy sectors such as piling, groundwork and specialist contracting.
“Tax, debt servicing, capital expenditure and working capital requirements are structural,” he said. “Removing them may improve the headline number, but it doesn’t change economic reality.”
With acquisition debt more expensive and lenders tightening criteria, Lay said buyers can no longer rely on adjusted or normalised metrics. As a result, deals that initially look viable on an EBITDA multiple often unravel during due diligence when adjustments are challenged.
He cited one example of a groundwork business seeking £8m based on four times EBITDA plus assets. While the company reported £1.8m EBITDA, Lay said net profit before tax was closer to £500,000 once depreciation and debt servicing were factored in.
“At that level, it would take 16 years to break even,” he said. “EBITDA might flatter the narrative, but it doesn’t pay the bank.”
By contrast, he pointed to a cladding and façade business generating £1.5m net profit before tax and seeking £4.5m, which he described as a more rational three-year break-even scenario.
Lay said the shift reflects a broader return to fundamentals in institutional investing, where cash generation and return on invested capital determine value rather than headline earnings metrics.
He warned construction business owners considering an exit to prioritise clean profit before tax, consistent cash conversion and balance sheet strength.
“Sellers who optimise for EBITDA presentation rather than underlying performance risk undermining their own exit,” he said. “Serious buyers are paying for durability and cash, not adjusted stories.”
The warning comes as construction M&A activity remains subdued compared with pre-2022 levels, with elevated interest rates and tighter credit conditions reshaping deal dynamics across the sector.
