M&A Upswing for Building Products & Construction Industry

We have started to experience greater interest in the Building Products / Construction sector over the past few months. This attention is both from owners and buyers – equally strategic and private equity. Clearly the increased activity in the residential and commercial building arena has brought awareness of improving revenues and profitability.

The businesses that survived the wicked downturn in demand are poised to reap wonderful rewards as the construction industry, across all sectors, is expected to grow. The survivors were forced to find efficiencies, cut overhead, close plants and locations, all the while meeting the demands of customers. These companies are primed to take advantage of the improving economic climate.

This improvement in corporate performance has opened the gateway of opportunity for owners.  The liquidity exit door for owners has been somewhat unclear due to tepid performance, uncertainty in demand, and buyers unwilling to “buy the future” with aggressive valuations. Therefore, the owners (those that could) have been waiting patiently for the right (some say “fair”) environment to sell. The time appears to be now.

And fortunately for the owners, buyers seem ready to accommodate this desire to sell.

M&A Activity

Overall transaction activity for Building Products and Construction were down about 15% for the sector, with fewer transactions in each of the segments we track. (Please see our industry report here). Construction and Engineering is the most active segment by number of closed transactions, however, the reported closed transactions indicate the average size between $2-3 million.  This is indicative of the fragmented nature of this segment, but also the willingness of buyers to understand the uniqueness that many of these small firms bring to the larger organizations.

During the last twelve months through 12/31/13, foreign buyers represented about 10% of total transaction volume. These buyers have represented as much as 15% of transaction activity in that past five years (see chart below). We expect this current level of activity to continue.

* Results exclude transactions that did not disclose buyer information

Source: PCE Industry Update – Building Products and Construction – 4th Quarter 2013

Fiscal 2014 could be the year that transaction activity reverses the downward trend of 2013 and exceeds the level of the recent past. Obviously, mortgage interest rates will be the tailwind or headwind affect. But despite this uncertainty, all the other factors – sellers, buyers, plenty of funds – all indicate that a robust year awaits.

If you have comments or questions about this article, or would like more information on this subject matter, please contact us.
Michael Poole

Investment Banking
Orlando Office

407-621-2100 (main)
407-621-2112 (direct)
407-621-2199 (fax)