Building Products & Construction Q3 2019

Building Products Q3

M&A Transaction Trends

Largest Transactions Closed

  • Target
  • Buyer
  • Value($mm)

Source S&P Capital IQ as of 10/10/2019 and PCE Proprietary Data

M&A Industry Trends

Not Enough Workers to Fill the Demand in the Construction Industry

The construction industry continues to face challenges with attracting and retaining a younger workforce while the supply of construction jobs and backlog of projects increases. The Commercial Construction Index reports that 61% of firms need to hire more workers.  Likewise, JLL’s Construction Outlook states construction employment growth struggled through the first three quarters of the year at .88% growth.1, 2

Exemptions and Restructured Budgets Ease Tariff Pains for Contractors

Tariffs continue to hurt contractors, as the cost of building materials increase. Yet we are starting to see the effects decline as the U.S Government grants exemptions and contractors structure budgets with tariffs in mind. JLL reports that contractors are adjusting their budgets to account for any increases in material costs. The Office of the U.S Trade Representative announced tariff exemptions to several key materials in construction: wood-laminate flooring, equipment used to produce quartz countertops, bulldozers, forklifts, portable concrete mixers, chain-link fencing, woodworking tools and equipment.3, 4, 5

Housing Starts are on the Rise

With a reduction in rates, prospective buyers are looking at new homes. In August, housing starts saw an increase at its highest level since June 2007, rising to 12.3%. The most significant driver has been multi-family developments showing 32.8% growth in August.

According to the Mortgage Bankers Association (MBA), mortgage applications have risen in Q3 by 9%. The MBA forecasts mortgage originations to be 32% higher from a year earlier at $605 billion. The increase in originations and home starts suggests an increasing demand for homes and may lead to more projects for the residential construction industry.6, 7

Today's Weather Encouraging Building Codes to Account for Resiliency

The rise in inclement weather incidents in the U.S increased demand for building resiliency projects. More than 60% of contractors surveyed in Q3 by the Commercial Construction Index indicate that they believe resilience code projects provide a competitive advantage. As project owners look to update building codes to account for resiliency, there should be an uptick in demand for contractors who understand resilience planning.8

Retaliatory Tariffs Reduce U.S. Exports of Lumber by 40%

The U.S Lumber industry’s largest buyer has enacted retaliatory tariffs on all lumber imports. China, which accounts for 54% of all U.S. lumber exports, imposed U.S. lumber manufacturers with a 25% tariff on all exports to the country. Exports of American wood products have dropped 40% year-to-date, resulting in layoffs and plant closures across the U.S.9

Ready-Mix Cement Industry Profits on the Rise

With the growth in residential construction, the ready-mix cement industry is poised to meet demand and increase revenues. IBISWorld forecasts that ready-mix profits will grow by 6.2% of revenue in 2019. With housing starts up by 12.3% in August, the cement industry should trend upwards during the last quarter of 2019.10, 11

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Largest M&A Transactions Closed

Target Buyer Value($mm)
All Assets of Elite Compression Services, LLC Archrock Services, L.P. $416.15
Franchise Operations of HSW RR., Inc. and Assets of Western Drain Supply, Inc. Roto-Rooter Services Company $120.00
CSI Electrial Contractors, Inc. MYR Group, Inc. $79.70
Aventure in Avondale Undisclosed $65.40
Certain Assets and Operations of Sun State Components Builders FirstSource, Inc. $43.00
Sioux City Brick & Tile Company Brickworks Limited $32.00
GeoDesign, Inc. NV5 Global, inc. $12.80
WHPacific, Inc. NV5 Global, inc. $9.00
Mid-Atlantic Energy Concepts, Inc. Schaedler Yesco Distribution, Inc. $1.53
Ruby Concrete Company Wright Concrete & Construction, Inc. $1.50

Source S&P Capital IQ as of 10/10/2019 and PCE Proprietary Data

Additional Resources

Keys to Selling Your Building Products Company eBook Keys to Selling Your Construction Company eBook

Contacts

Michael Poole

 

Michael Poole

Investment Banking | ESOP

 

407-621-2112

mpoole@pcecompanies.com

Michael Rosendahl

 

Michael Rosendahl

Investment Banking

 

201-444-6280 Ext 1

mrosendahl@pcecompanies.com


Data Assumptions

This report represents transaction activity as mergers & acquisitions, consolidations, restructurings and spin-offs. Targets are defined as U.S. Based companies with either foreign or U.S. based buyers. Transaction information provided is based on closed dates only.

Glossary

EBIT - Earnings Before Interest and Taxes
EBITDA - Earnings Before Interest, Taxes, Depreciation, Amortization
LTM - Last Twelve Months
TEV - Total Enterprise Value

Sources:

  1. USG Corporation, and U.S Chamber of Commerce. “Commercial Construction Index Q3 2019.” Usg.com, 2019.
  2. JLL Construction. “Construction Outlook.” JLL Construction, 2019.
  3. USG Corporation, and U.S Chamber of Commerce. “Commercial Construction Index Q3 2019.” Usg.com, 2019.
  4. JLL Construction. “Construction Outlook.” JLL Construction, 2019.
  5. White, Martha C. “Trump Lifts Some Tariffs, in Sign Trade War Is Inflicting Harm on U.S. Economy.” NBCNews.com, NBCUniversal News Group, 20 Sept. 2019.
  6. Chaney, Sarah. “U.S. Housing Starts Rose Significantly in August.” The Wall Street Journal, Dow Jones & Company, 18 Sept. 2019.
  7. Kiernan, Paul. “Mortgage Rates Decline Ahead of Fed Meeting.” The Wall Street Journal, Dow Jones & Company, 18 Sept. 2019.
  8. USG Corporation, and U.S Chamber of Commerce. “Commercial Construction Index Q3 2019.” Usg.com, 2019.
  9. Hufford, Austen. “'It's a Crisis'; Lumber Mills Slash Jobs as Trade War Cuts Deep.” The Wall Street Journal, 26 Sept. 2019.
  10. Chaney, Sarah. “U.S. Housing Starts Rose Significantly in August.” The Wall Street Journal, Dow Jones & Company, 18 Sept. 2019.
  11. "On the rock: Rising construction activity will continue to support industry demand,” IBISWorld, July 2019.
David Jasmund

 

David Jasmund

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