Construction

Construction M&A Outlook 2010

Mergers & acquisitions (M&A) activity in the construction industry is likely to remain sluggish in 2010. Although some improvement was seen in late 2009, both average deal value and deal frequency were down in 2009 compared to 2008 – 13 percent lower in the fourth quarter. A poor economy equals reduced demand for construction and, although the economy is starting to recover, many believe there will be a second dip, or aftershock, in 2010.

Large-deal M&A activity (more than $1 billion) improved throughout 2009, from two transactions in Q1 2009 to four in Q4 2009, a trend expected to continue. But M&A activity throughout the midmarket was on the decline. A poll by Global Markets Direct completed in early 2010 indicates that more than 40 percent of contractors and project sponsors in the construction industry expect to increase their levels of acquisitions in 2010, with just under 15 percent expecting to remain consistent in such activity.

Cross-border transactions also were faltering as M&A activity developed a focus on vertical integration and building scale and density in established geographic locations, a factor likely influenced by government support and subsidy. Regionally, M&A activity was most prominent in the developing construction industries of Brazil, Russia, India and China, which combined were responsible for eight of the 41 deals in Q4 2009, six of which were attributed to China, which received impressive government support and experienced no shortage of funds.

In a new trend emerging in the construction industry, financial investors are increasingly responsible (39 percent in Q4 2009 compared to 20 percent in Q1 2009) for M&A activity, a trend likely to continue in 2010. Efficiency is key. Non-construction industry acquirers will seek to boost efficiency within a company and update operations with enhanced information and communication technologies. Essentially, they will look to improve and enhance basic functioning of the acquired company to increase value for future sale. This will be a common occurrence with midmarket companies (less than $100 million).

Economic recovery within the construction industry is expected to occur through innovation and its role in reducing greenhouse emissions to meet government requirements. Established construction companies will also look at the midmarket for ways to develop new products and extend geographic reach through acquisition, but the number of deals likely will be limited through 2010. Expect increased M&A activity throughout the midmarket in 2011 as the economy begins to improve and availability of financing increases.

SOURCES: PriceWaterhouseCoopers; Global Markets Direct

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• Construction M&A Outlook 2009
• Construction M&A Outlook 2008