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    Building Products & Construction Q3 2020

    Q3-2020-Building-Products-Construction

    Industry Trends

    Homebuilder Sentiment Reaches Record High

    According to the National Association of Home Builders/Wells Fargo Housing Market Index, homebuilder sentiment increased 5 points to 83 in September, the highest reading in the survey’s 35 years. Any reading above 50 indicates improving confidence. The index saw increases in all three of its components: current sales conditions increased 4 points to 88; sales expectations in the next six months rose 6 points to 84, and the traffic of prospective buyers increased 9 points to 73.1

    Home Construction Increases with Demand

    Low interest rates and limited inventory in the housing market are driving increases in single-family home construction. New single-family home sales rose nearly 14% from June to July, to a new seasonally adjusted rate of 901,000, the highest rate since December 2006. The home-building sector's positive outlook represents a stark contrast to early spring 2020 when coronavirus shutdowns across the country caused construction to halt.2

    Lumber Prices Increasing Rapidly

    Lumber prices have risen 130% from April to September of 2020 because of lower supply and increased demand. As COVID-19 related shutdowns and social distancing measures reduce capacity at lumber mills, demand for lumber is growing rapidly in response to increasing home construction and damages from large storms and wildfires throughout the country. Tariffs from Canadian lumber mills are also contributing to rising price levels.3

    Construction Industry Strained by Skilled Labor Shortages

    83% of contractors report moderate to high levels of difficulty finding skilled workers according to the U.S. Chamber of Commerce Quarter 3 Commercial Construction Index. Of those contractors, 36% reported turning down work due to insufficient labor, representing an increase from quarter 2. Contractors are pessimistic about the future of skilled labor, with 62% of survey respondents reporting that they expect the problem to remain the same in the coming months.4

    Demand for Building Plastics Rises

    Plastic is growing in popularity in building due to its physical properties, low cost, and recyclability. Pipes and ducts account for nearly 35% of the building plastic industry, followed by insulation and door fitting segments. The global building and construction plastics market is forecasted to grow at a 7.1% annual rate.5

    Artificial Intelligence Institute to Improve Construction

    The University of Illinois has received grants from the U.S. government’s National Science Foundation and the Discovery Partners Institute to set up the National Institute for Artificial Intelligence in Construction. The initiative will pair interdisciplinary scientists with 40 construction industry partners to address productivity and safety problems within the industry.6

    House Republicans Introduce the BUILDER Act

    The Building U.S. Infrastructure Through Limited Delays & Efficiency Reviews (BUILDER) Act was introduced to the House of Representatives. The act aims to codify the National Environmental Policy Act (NEPA) rulemaking. If passed, this legislation would include improving NEPA review efficiency and clarifying when NEPA review is needed. This legislation would ultimately eliminate unnecessary delays and reduce costs in the construction industry.7

    Commercial Contractor Confidence Improves

    Commercial contractors’ confidence in the market's ability to provide new business in the next 12 months has improved. According to the U.S. Chamber of Commerce Quarter 3 Commercial Construction Index, contractor confidence is up 6 points to 56 from 50 in quarter 2. Revenue expectations have also improved slightly from Quarter 2, as many contractors have seen construction projects return after the initial pandemic shutdowns. The revenue expectation index for Quarter 3 was reported at 48, compared to 44 in Quarter 2 and 70 in pre-pandemic Quarter 1.8

    Backlogs Affecting Commercial Construction

    The ratio of current average backlogs to ideal backlogs has fallen 5 points to 68 this quarter within the commercial construction industry. This decrease represents an even larger drop from the pre-pandemic score of 76 in quarter 1. The COVID-19 crisis’s impact on backlog may continue for several more months as an average share of 26% of projects face delays.9

    Largest Transactions Closed

    • Target
    • Buyer
    • Value($mm)
    • Turf Design, Inc.
    • Armstrong World Industries, Inc.
    • $118.00
    • Delta Railroad Construction, Inc.
    • Salcef USA, Inc.
    • $36.10
    • Alta Vista Solutions, Inc.
    • Atlas Technical Consultants
    • $14.60
    • Quarry Segment of Americold Realty Trust
    • Undisclosed Buyer
    • $9.00
    • ART Quarry TRS LLC
    • United States Lime & Minerals, Inc.
    • $9.00
    • Utility Management Corp.
    • Renavotio Infratech, Inc.
    • $2.85
    • PERC Water Corporation
    • Consolidated Water Co., Ltd.
    • $0.90

     

    Source S&P Capital IQ as of 10/13/2020 and PCE Proprietary Data

    Additional Resources
    eBook- Ketys to Selling Your Building Products Company

    Contacts

    eBook- Keys to Selling Your Construction Company

     

    Michael Poole

    Michael Poole

    Orlando Office

    407-621-2112

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    Michael Rosendahl

    Michael Rosendahl

    New York Office

    201-444-6280 Ext 1

    Contact Me Now

    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. Olick, Diana “Homebuilder sentiment soars to record high, but lumber prices raise a red flag” CNBC, September 16, 2020.
    2. Friedman, Nicole. “Demand for Houses Boosts Home Construction.” The Wall Street Journal, September 1, 2020.
    3. Ghosh, Palash. “Soaring Lumber Prices Pose Threat To Homebuilding, While Housing Inventory Keeps Narrowing.” International Business Times, September 25, 2020.
    4. “Commercial Construction Index.” U.S. Chamber of Commerce.
    5. 526 Media Group. “Building Plastics Looking Up.” Building Products Digest, September 17, 2020.
    6. Lescohier, Jenny. “Dedicated AI institute to solve construction problems.” International Construction, September 23, 2020.
    7. Gale, Rebecca. “House Republicans Introduce the BUILDER Act to Modernize NEPA.” Associated Builders and Contractors, September 23, 2020.
    8. “Commercial Construction Index.” U.S. Chamber of Commerce.
    9. “Commercial Construction Index.” U.S. Chamber of Commerce.

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