Adkins Electric, of Jacksonville, Florida, is a provider of electrical contracting services for multi-family and commercial construction. Founded in 1977 by CEO Virgil Adkins, the company has grown from a single employee to a 90-person firm serving the greater Jacksonville area. As a leading name in its home market, Adkins provides its acquirer immediate market gravity in one of the country’s fastest-growing regions.READ MORE >>
The construction materials industry is comprised of suppliers of the raw materials used by builders in both commercial and residential construction. This wide array of materials are both natural and man-made:
- Limestone, granite, sand, clay, gypsum
- Cement, gravel and crushed stone
- Bricks, mortar, concrete, asphalt, and other materials
- Wood, timber, plywood and veneer
- Glass, plastics, ceramics and foam
- Steel, copper and aluminum
Mergers and acquisitions in this space are highly dependent on market predictability. This particular sector is susceptible to various factors that dictate its economic health and prosperity. These include:
- GDP growth
- Trade and tariff issues
- Interest rates
- The strength of the housing markets
- Labor shortages
- The cyclical demand imposed by seasonality and the weather
The top three global markets that lead the way and have the most potential for growth in the building materials industry are Asia-Pacific, the Middle East and Africa, and the United States. Population growth and sprawling urbanization increase the demand for construction, and therefore increases the demand for construction materials.
The construction materials sector is quite fragmented with relatively low concentrations of market share, low barriers to entry, and high availability of alternate manufacturing capabilities (such as in hardware and cabinetry). As industry leaders typically concentrate on high-demand markets, access to substitutes creates opportunities for smaller players, allowing them to serve niche and lower-demand markets.
In contrast, some sub-sectors are more integrated because they depend greatly on one or a few key materials, so industry leaders often occupy a major portion of the market (such as insulation or countertops).
Key Drivers of M&A
In the construction materials industry, key drivers for M&A activity include:
- Large project backlogs with healthy margins
- A need for revenue growth in a sector where organic growth is challenging to achieve
- The availability of low-cost debt financing
- Improved supply channels
- The level of demand for housing
Strategic buyers seek acquisitions in this space in order to:
- Strengthen their market positions by adding competitors and niche companies
- Develop a technological advantage and build a stronger brand
- Expand globally and take advantage of established distribution networks
- Fuel growth and improve margins through economies of scale
- Integrate customer bases and create barriers to entry
An Untapped Opportunity
The global construction materials industry is one of the least digitized industries in the modern world. It already faces plenty of inherent challenges, and paperwork slows down processes. New operational tools can offer better ways to evaluate performance and allow real-time views into inventory, transit, and fleet operations.
There is an opportunity for all stakeholders to benefit substantially from digitization and automation within this particular industry. These improvements include better productivity, greater cost savings, enhanced customer service, and a powerful competitive edge. Adaptation of new technologies in this industry can also unlock new opportunities for M&A transactions as companies look for easier paths to accessing innovation.
The Advent of New Materials
Technology is changing more than the way construction material companies do business. It is also changing the materials themselves. As the world looks to more sustainable and environmentally friendly construction projects, builders will look to new materials, and the suppliers of construction materials must be prepared to keep pace. New innovations in materials include:
- The recycling of plastic to build roads
- Carbon dioxide-infused concrete to improve durability
- Self-healing concrete
- 3D-printed materials
- Translucent wood as a low cost resource
- Hydroceramics (temperature-reducing bricks)
- Light-generating cement
- Modular bamboo
- Aluminum foam
- Bricks that absorb pollution and filter air
- Algae-infused energy-producing wall panels
The construction industry serves almost every other industry, and is the single largest worldwide consumer of resources and raw materials. It is also a massive generator of waste due to demolition. There can be great value in exploring changes in the way buildings are constructed and the materials that are used. Even small changes have the ability to produce substantial benefits for society simply because of the sheer magnitude of the industry. Project owners and investors can play an important part in propelling the industry forward.
At Benchmark International, our M&A specialists are on standby, just waiting for you to enlist their partnership in selling your business or growing your company. Let us put our exceptional strategies, proprietary technologies and global connections to work for you.READ MORE >>
The segment of the trillion-dollar construction industry that includes building and maintenance offers opportunities for growth in both residential and nonresidential building construction. Buildings are becoming more intricate as owners and residents expect more from their homes, workplaces and other structures. There are major opportunities for construction and service providers due to the required maintenance of new systems, and the need to upgrade or replace existing systems. This is a great driver of mergers and acquisitions interest and activity in the sector.
Another significant driver of M&A in this industry is the need for vertical integration between companies including equipment manufacturers and building technology providers. These businesses seek to grow their service capabilities through the convergence of innovation and traditional mechanical and electrical building services. Target companies that draw the most attention from buyers are often specialty contractors that have proven success in working within the ever-changing technology landscape in the industry. Mechanical, electrical and plumbing companies that are willing to adopt building information modeling, prefabrication capabilities, and data center knowledge are more likely to draw attention from interested acquirers in this sector.
Construction project delivery methods are also a driver of vertical integration and M&A activity. In addition to the traditional design-bid-build delivery method is:
- Construction manager at risk (CMAR): The owner selects a construction manager (CM) to be responsible for the project using criteria such as construction cost, quality, track record, project approach and deadline-meeting ability. The design and construction are contracted separately, and the CM offers input on the budget, cost estimation, scheduling, and review of design drawings to ascertain issues and potential savings. Construction pricing is started early in the design process and refined as it progresses, giving a final guaranteed maximum price (GMP) to the owner prior to construction. GMPs are often comprised of a cost-plus-fixed-fee structure, where the actual project costs for labor and materials are passed through to the owner, and the CM charges a fixed fee on top of that amount.
- Design-build (DB): The owner hires a crew under a single contract to deliver the construction project from start to finish, for both the design and the construction components. Pricing changes are kept to a minimum, and usually only occur when unknown conditions or owner requests increase the cost.
- Integrated project delivery (IPD):The owner chooses an architect/engineer and CM prior to the start of the design. All three sign a joint contract after agreeing upon all objectives. Increased collaboration is thought to reduce overall risk.
- Public-private partnership (3P): Under this model, a contract is established between a government entity and a private corporation to fund, construct, renovate, operate and maintain public infrastructure. The private entity gets back income generated from the project in order to pay off and eventually profit from the investment.
As integrated delivery methods gain popularity across more and more markets, contractors look to M&A to add in-house design services through strategic partnerships that give them a competitive advantage.
Additionally, some companies are taking vertical integration in the building sector to the next level. In order to cut down on time and reduce costs in a building construction project, they are vertically integrating the model of design, material supply, manufacturing, logistics, and assembly.
As in most industries, the acquisition of technological solutions is an inevitable driver of M&A in the building and maintenance industry. Technology provides a vehicle for differentiation for companies operating in this sector. Construction technology startups are on the rise, offering new software solutions and innovating the way buildings are constructed.
- Building information modeling (BIM) uses 3D models to streamline collaboration.
- Mobile technology enables real-time data collection and communication between job sites and project managers.
- Cloud-based solutions allow job-site employees to perform tasks such as submitting timesheets and expense reports, and accessing work records.
- Artificial intelligence is transforming data and predicting future outcomes for projects.
- Virtual reality is being used in training and to improve worker safety.
- Wearable technology is also being used to enhance job-site safety.
- Autonomous heavy equipment is allowing companies to do the same amount of work with a smaller number of workers.
- Robots are being used to monitor construction progress and drones are being used to photograph sites.
- Site sensors monitor environmental conditions such as noise, temperature and other factors.
Bringing all types of new technology in-house is a key competitive advantage for companies in this space. The growing role of technology in the construction sector results in revised strategies for some companies, which impacts acquisition strategies.READ MORE >>
The engineering services sector is made up of Engineering Services Outsourcing (ESO) firms or Engineering Service Providers (ESPs) that specialize in planning, design, and technical work at each stage of a product lifecycle. ESO is commonly used by industries such as construction, automotive, telecom, energy, transportation, pharmaceuticals, and manufacturing. Among the services offered by ESO that are consistently in high demand are structural, architectural, civil, and electrical engineering.
Industry Growth Drivers
Growth in the engineering services industry is stimulated by circumstances that include:
- Increasing technical complexities regarding product development and manufacturing
- A need to reduce costs
- Shorter product lifecycles
- Demand for innovation
- Increasing tie-ups between ESPs and Original Equipment Manufacturers (OEMs)
The Demand for ESO
As clients demand more complex solutions and shorter product lifecycles, there is a growing need for the use of subcontractors through ESO. Shorter duration solutions result in renewed managed service contracts, helping ESO businesses to do well. Additionally, some engineering companies opt to use ESO as an extension of their own capabilities.
Other reasons that companies choose to use ESO include:
- Access to more cutting-edge technologies and more complex engineering services
- The ability to focus time and resources on other critical tasks such as marketing
- Need for less office space and lower office equipment costs
- Faster project turnaround that can result in improved client satisfaction
- Access to services on an as-needed basis
- Around the clock support services
ESO demand is also affected by the specific needs of individual industry sectors.
- ESO in consumer electronics is driven by consumer demand for enhanced mobility and entertainment, and the better exchange of information between devices for data and media.
- Both onshore and offshore ESO is used in the automotive segment in developing countries due to their high demand for passenger vehicles and economical cars. Demands in developed countries include car connectivity, advanced driver assistance, Vehicle-to-Vehicle (V2V) and Vehicle-to-Infrastructure (V2I) communication.
- Tech companies, OEMs and semiconductor companies look to ESO for assistance in developing next-generation smart devices. These businesses also employ ESO to stay competitive by focusing on product localization needs, new features, and industry best practices.
- The telecom industry accounts for a major share of ESO revenue as global telecom companies continue to expand their market presence around the world.
Adapting to the Tech Era
In today’s digital world, engineering services companies must adapt their business models to focus on emerging technologies and their integration with manufacturing and engineering services. This adaptation is crucial to realize the full potential of these growth opportunities. These technologies include data, sensors, the Internet of Things, embedded electronics, Machine-to-Machine adoption, and other digital transformative solutions.
The Need for M&A
As delivery methods for engineering services continue to change, engineering firms must either look to acquire new technologies, or diversify into higher value advisory services and focus on forming strong client relationships. Mergers and acquisitions are a resourceful path to establishing these services in a highly competitive market.
M&A strategies are also vital to creating growth and uncovering new strategic pathways. Larger companies look to acquire smaller companies in order to remain relevant, close talent gaps, expand to new regions, and strengthen their portfolio of offerings. This increased consolidation results in the prevalence of more one-stop service providers.
Because larger engineering services firms have more developed infrastructure and economies of scale, they are able to easily outbid smaller firms. This makes it problematic for the smaller firms that are trying to keep up and stay profitable. As a result of such challenges, many small engineering services companies are forced to rethink their options and consider partnership with larger firms through acquisitions.
M&A as a Succession Solution
Additionally, private engineering services companies may face succession issues because they typically have one or two founders who eventually plan to retire. When these particular business owners choose to exit the company, in many cases the next generation either cannot afford to buy out its departing leaders or is unwilling to do so. In these situations, M&A transactions are an ideal way for middle-market leadership to solve succession-planning issues, form a strong exit strategy, and set up the future trajectory for the company.
Please reach out to our cross-border M&A specialists at Benchmark International to start the conversation about selling your business or devising your exit strategy. We can offer unique perspectives, services and tools that work in concert to arrange a deal that delivers on your every aspiration. We think you will like what we bring to the table.READ MORE >>
The construction drilling industry is a very diverse market that handles various private and public contracts that include infrastructure expansion, excavation, road boring, poly piping, trench work, geotechnical drilling, and foundation drilling.
The key drivers for mergers and acquisitions in the construction drilling industry for most companies include:
- The objective to grow and diversify the businesses
- Expansion of services and capabilities
- The need to address qualified labor shortages in an industry where talent is increasingly difficult to find
At the same time, labor shortages can also be a reason that some drilling businesses may hesitate to make a major acquisition, as they do not have enough young leader talent to make it work in their favor.
The sectors that continue to be ripe for acquisition activity are civil infrastructure and industrial. Organic growth and access to labor is challenging for both of these areas.
Consolidation is also driven by a customer demand for large companies that offer integrated, single-source solutions. This includes the collaboration by design and construction firms looking to vertically integrate and expand their delivery capabilities. Additionally, strategies are about more than the creation of better solutions for clients in the construction drilling industry. They are also motivated to create a better platform for employees. In what is a very competitive labor environment, offering a solid growth platform is just as crucial to employee retention as it is to customer satisfaction and shareholder value. Employees can benefit from the advantages and growth possibilities that come with being part of a larger infrastructure company.
The interest of buyers in the drilling sector is partially driven by the need to remain competitive by adding capabilities and scale in a market where competitors are acquisitively expanding their own capabilities and scale. With a divide between large integrated firms and smaller niche providers, those that are not growing at the same rate as their competitors risk getting lost somewhere in the gap.
Horizontal Directional Drilling (HDD)
Horizontal Directional Drilling is a trenchless procedure that is utilized to install underground pipes, cables and conduits along a pre-determined route by using a surface-launched drilling rig. It has gained great popularity in the industry because it causes minor damage to the topography of the adjacent areas.
The opportunities for growth in the HDD market are strong because of the high demand that comes from the telecommunications sector. As telecom companies take action to expand broadband service availability, it increases the demand for the installation of cellular towers. As digitization is steadfast in both developed and developing countries worldwide, cable, broadband and fiber companies are expanding networks to serve the growing demand. The growth of the HDD market is also heavily supported by the steady demand from utilities such as electric, water and natural gas distribution. Utilities account for more than half of the overall revenue in this market.
Some of the unique challenges this industry faces are related to a lack of contractor review for construction assessment prior to starting projects, and the hiring of unqualified engineers and consultants with no prior experience.
The HDD market sees significant activity in North America, with telecommunication and energy amassing a major share of the revenue. Other major markets that have a high demand for utility installations and broadband access include China, India, Australia, and Japan.
The world is full of opportunities and Benchmark International has the connections to help you effectively grow your business or sell your company whether it is domestically or across borders. Set up a call with one of our M&A experts and we can begin to delve into what how we can maximize your value and make the markets work for you.READ MORE >>
The HVAC industry is considered to be very stable at this moment in time. Many experts believe the outlook for both buying and selling parties will remain positive. As public interest and government regulations continue to push for energy-efficient designs and products, deployment of more advanced cost-effective HVAC systems has increased. This is expected to drive consolidation of HVAC organisations as they look to increase their ability to scale and grow in both commercial and residential markets. Despite uncertainty surrounding a possible recession, there has been no signs of slowing in the M&A industry amongst HVAC businesses.
The global HVAC market is projected to grow at a compound annual growth rate of 5.7%, to reach a value of $183bn by 2025. The growing commercial sector and rapid urbanisation worldwide are driving the demand for HVAC services and equipment. Furthermore, even manual industries such as HVAC must change with the times, and as a result they are being integrated with next-generation technologies such as IoT sensors, remote control systems and hybrid HVAC united, as a way to further reduce energy consumption - this is another factor which is anticipated to contribute to the global market expansion.
Key Industry Trends
- Smart HVAC: The growth of IoT has allowed us to control, monitor and interact with a range of systems and appliances like never before; HVAC systems are beginning to incorporate this technology. These advanced HVAC systems will include the likes of repair notifications that let you know when repairs or maintenance is needed, remote access that have remote capabilities, and self-regulation which feature new sensors which help the system regulate itself and determine when and where in the building it is most needed.
- Sustainable Building Design: Sustainability is a primary consideration when designing new buildings, often referred to as green buildings design. HVAC is a key component in green buildings design as it is one of the primary energy consumers. The increased focus on sustainability has led to several advancements in the industry, such as ventilation systems using more use of natural airflow to lower the energy consumption of the facility. HVAC systems using alternative power sources and using new building materials that help to maintain a more constant temperature in the buildings where a powerful HVAC system isn’t necessary.
- DeVAP HVAC: DeVAP (Desiccant Enhanced Evaporative) is changing HVAC as we know it. These systems provide cooling by using an evaporating cooling system which turns water into evaporation and causes the surrounding air to cool down. DeVAP systems also remove humidity from the surrounding air. They provide the same dry, cool air offered by traditional air conditioners. However, DeVAP systems consume considerably less energy and contain no harmful refrigerants.
- Geothermal HVAC: These take advantage of consistent temperatures underground to cool and heat buildings. Using water running through underground tubes, these tubes are either heated or cooled by the temperature of the ground. This water then travels to an indoor unit, where a fan, pump, and compressor are used to deliver cool or hot air to other parts of the building.
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Call Benchmark International today and speak with one of our analyst about your company's exit or growth strategies.READ MORE >>
The outlook for the global construction market for the year of 2019 remains positive, with an expected five-percent sector-wide growth in revenue. Robust economies, low interest rates, and increased infrastructure spending are key factors behind the increased confidence. The world’s fastest growing market is the Asia Pacific region, due to growing investments in China and India’s construction sectors. In North America and Europe, growth is being driven by new technologies in already strong construction markets. Also, a number of South American and Middle Eastern countries may see their markets recover in the coming year and have the potential for growth in the future.
Mergers and acquisitions for the construction industry are poised to follow the vigorous deal activity of 2018. Construction tech startups raised $1.27 billion in venture funding in the first three quarters of 2018 alone. Public companies were seeking growth. There was increased interest in individual sectors such as energy. Private equity firms were actively buying and selling. Another significant factor was a need for ownership changes due to a growing retirement-age population. These trends are predicted to continue throughout 2019.
Construction technology startups are expected to continue to have a considerable impact this year. This industry segment has seen more than $10 billion in funding over the past 10 years, with most of the money coming from early-stage venture capital deals. As these tech companies evolve, bigger firms are making full acquisitions. One strategic reason behind these large acquisitions is for companies to procure more talent in a more efficient manner, which in turn is anticipated to drive business growth.
Society is seeing a heightened focus on infrastructure upgrades and the creation of smart cities. In 2016, smart-city tech spending reached $80 billion globally. By 2021, spending is expected to grow to $135 billion. Smart cities use Internet sensors and other technologies to connect elements across a city to gather data and enhance the lives of its residents. Partnerships between private and public companies are helping governments incorporate new technologies in an increasingly urbanized world. The advent of smart cities was initially seen in Europe, and now the U.S. has begun to integrate technology into urban infrastructure.
The quickly growing modular construction market is projected to reach $157 billion by 2023. The capability to build taller modular buildings is reaching new heights, with some buildings stacking up to almost 20 stories. This offsite type of construction is addressing certain industry needs, such as the need for skilled labor, the need for affordable housing, and the need to complete projects more quickly.
A rapidly emerging trend that many investors are watching closely is connected construction. Companies are incorporating technology into construction sites to save time and money. Bluetooth connectivity is driving the emergence of new worksite tools that can be tracked, monitored, and even deactivated. Mesh networks are enabling sites to be fully connected to wireless networks in order to streamline processes around obstacles in the way of man-hours, status updates, supply deliveries, blueprint consultations, and more.
These emerging technologies have prompted several recent acquisitions, just to name a few.
- Autodesk Inc. purchased construction productivity software company PlanGrid for $875 million.
- Autodesk also spent $275 million to buy BuildingConnected, a networking platform of more than 700,000 construction professionals.
- Trimble bought construction software company Viewpoint from Bain Capital for $1.2 billion.
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