I am trying to purchase and environmental engineering company and I
need to know how to asses the value against the annual revenue of the
company.  The company has around 50 employees, has been in business 7
years and has an annual revenue of $3,300,000 and is profitable at
around 12% EBIAT.  Can you find me comparable company sales that will assist
me in determining the purchase price?

Determining the price by looking at comparative companies is dangerous
territory. You could look at environmental engineering companies in
different parts of the country, but the market forces and parameters
would be too different - for example there may be a huge amount of
work in California and an under-supply of EE companies, whereas in
Nebraska the opposite might be true (in which case, if you're in
Nebraska avoid this company).

To determine a fair price is reasonably easy (though some elements
could be time consuming):

What is the sustainable earnings of the company under management (ie
what could you expect to walk away with. You say the EBIT is 12% of
$3.3m, which would equal approx $400k. If you were to put a manager in
that would cost you say $60k, leaving you $340k profit.

For an engineering company the P/E (price to earnings) is usually low
- say 2.5-3.5, so multiply the $340k by whatever P/E ratio you'd like
to pay.

Add the value of plant and stock. That's your approximate price (very
approximate).

Now for the time consuming part: find out whether the company has a
lot of room for growth or whether it's a stagnant market. Eg
commercial cleaning is a stagnant market - not enough buildings are
built in relation to the number of commercial cleaning companies to
allow strong market growth - you have to grow by acquisition. It ends
up being a big washing machine of companies stealing clients from each
other and nobody making any headway. If environmental engineering is
the same, use a lower P/E, or avoid it (note: this varies regionally
which is why you can't benchmark against other sales).

You'll also want to do the standard due diligence - what's the company
growth over the last 7 years, why is it being sold, who are the
competitors, how do the competition market themselves, what is the
corporate culture (ie does everyone get along), are there any planned
mergers/acquisitions amongst competitors, do they have any proprietory
technology/methods, are their contract long-term, etc.

Hope this helps (and that I haven't told you how to suck eggs, so to
speak)

darren