COVID-19 Impact on M&A
Building Products & Construction industry M&A activity between March 22 – December 31 is down nearly 31% (273 transactions) compared to the same period in 2019 (393 transactions). Between March 22 – December 31, Construction and Engineering (211 transactions) made up over 77% of the total closed transactions, which is greater than the 73% of transactions in the same period in 2019 (288 transactions). Strategic buyers drove nearly 87% of transactions closed between March 22 – December 31 (224 transactions). In comparison, 2019 had over 90% of transactions completed by strategic buyers within the same period.
Construction Materials Shortage
According to the Q4 2020 U.S. Chamber of Commerce Commercial Construction Index, 71% of contractors surveyed face at least one material shortage. Lumber has been cited as the largest material shortage by 31% of contractors. This shortage is followed by steel and electrical supplies other than copper wire at 11%. Increasing demand from home builders and remodelers could keep costs high. Steel prices have seen a dramatic increase throughout the year, with prices up more than 40% since January 2020. These material shortages have attributed to an average $14,116 increase in the cost of new single-family homes since April 2020. Aluminum prices have remained high since reaching a 17-month peak in October. The price of aluminum has increased by 13% year-to-date and is currently up by 40% from its May lows.1 2 3
Lumber Tariffs Cut in Half Leading Into 2021
After a year of volatile lumber prices, the U.S. Commerce Department has decided to reduce Canadian lumber tariffs from 20% to 9% in December. The U.S. purchases approximately 65% of Canada's dimensional lumber, the majority of which is used for home construction framing. After an initial retreat from September highs through November 2020, lumber prices have rallied by 20% in the last four weeks of 2020. While the reduction of these tariffs provides a positive development for the industry, lumber shortages are expected to continue through early 2021 as lumber producers continue to reduce production for the traditionally slower building season.4 5
U.S. Homebuilding Increases in November
U.S. homebuilding and permits increased solidly in November, pointing to continued housing market strength despite the slowing economic recovery amid a resurgence in COVID-19 cases. Homebuilding has surged 12.8% year-over-year, with single-family home building rising to an annual rate of 1.186 million units, the highest level since April 2007. The increaseis mostly due to the Coronavirus requiring 21.8% of the labor force to work from home, which led to a migration from cities to suburbs as Americans seek out spacious accommodation for home offices and school. However, builders are worried about rising construction costs due to the shortages of land, materials, and skilled labor.6
Moratoriums on Mining Projects Threaten Steel Shortages
Following the destruction of two ancient caves in Australia from Rio Tinto's iron-ore mining activities, the Australian federal government's looming threats of legislative scrutiny on mining activities have contributed to Iron Ore prices reaching a seven-year high in December. Experts warn that moratoriums on mines that encroach on historical and cultural sites could delay production and the global supply of steel. The effects of a blanket moratorium on mining in Western Australia would impact the price of iron ore and other commodities through 2021 and beyond.7
Construction Sites Use Automated Technology to Limit Energy Output
Infrastructure giants have turned to new technologies in recent months to mitigate project emissions and power usage. Balfour Beatty is currently implementing automated systems that manage energy output at worksites by automatically turning off appliances that are not currently in use. The company plans to roll out the technology to 50 sites throughout the year. Balfour Beatty is one of many companies taking action in recent months to reduce the 36% of global energy use that building and construction operations are responsible.8
Optimism for 2021 Construction Labor
Optimism returns for construction companies after high costs and a shortage of unskilled labor plaguing the industry over the past year. A recent AGC survey showed that 75% of U.S. construction companies expand their workforce next year. A shortage of skilled labor is expected to continue to affect many companies through next year, but with less severity than previous months. The loosening of pandemic restrictions, recent rollouts of COVID vaccines, and strong demand for construction projects contribute to the optimism leading into 2021.9
Managing Construction Sites From Shutdowns
Companies are preparing to mitigate the effects of future COVID-19 related shutdowns after a year filled with hard-learned lessons. Proactive security measures, detailed progress documentation, and fast-tracking schedules are increasing trends for construction companies. Weighing the costs of finishing a job early with the risk of getting caught within a lockdown is a decision many companies find themselves debating. The effects of a potential lockdown are being handled effectively through clear documentation of site progress, winterizing sites early, and securing materials as early as possible. In the event of another shutdown, many owners will likely keep teams together and workers engaged to lower the risk of skilled labor fleeing to find work elsewhere.10
Largest Transactions Closed
- Larson Manufacturing Company, Inc.
- Fortune Brands Home & Security, Inc.
- Potters Borrower LP
- The Jordan Company, L.P.
- T.A. Industries, Inc.
- The RectorSeal Corporation
- The Goldfield Corporation
- First Reserve Corporation
- Arktura, LLC
- Armstrong World Industries, Inc.
- Vanguard Modular Building Systems, LLC
- BOXX Modular, Inc.
- H&H Homes, Inc.
- Dream Finders Homes, Inc.
- Architectural Mailboxes, LLC
- Gilbraltar Industries, Inc.
- Facility Located in McCook, Illinois
- Apogee Enterprises, Inc.
- Braselton Homes, Inc.
- D.R. Horton, Inc.
Source S&P Capital IQ as of 1/11/2021 and PCE Proprietary Data
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.
EBIT - Earnings Before Interest and Taxes