Construction

M&A activity in 2009 will likely take a backseat to other growth opportunities, according to construction executives surveyed by PricewaterhouseCoopers. In 2008, 46 percent of construction CEOs said they were planning a cross-border M&A over the next 12 months. This year, that figure has dropped to 21 percent. Only 10 percent of the executives see M&A deals as the best way of growing their business this year.

It seems unlikely that many large, highly leveraged deals will take place in the current economic climate. But a significant number of CEOs are looking to other types of transactions to fill the gap. About 50 percent expect joint ventures and strategic alliances to play a greater role in the growth of their companies during the next three years.

The construction industry accounts for about 10 percent of the world’s gross domestic product, 7 percent of employment, half of all resource usage and up to 40 percent of energy consumption, according to PricewaterhouseCoopers. As a result, the changes in this industry impact every day of our lives and are a driver to economic activity.

That is why significant drops in residential and non-residential construction have hurt the industry and the overall U.S. economy. In 2008, about 56 percent of executives at construction firms were confident about the prospect of revenue growth. This year the outlook is much bleaker, with only 18 percent of the CEOs confident about the prospects for the next 12 months.

The focus of U.S. commercial construction has shifted to the federal government’s stimulus package that includes $48 billion for projects aimed at repairing and improving roads and bridges throughout the country. Construction firms desperate for work have submitted bids 15 percent to 30 percent lower than anticipated for those transportation projects.

Sources
12th Annual Global CEO Survey: Construction Industry Summary, PricewaterhouseCoopers.
(April 15, 2009). State Highway Projects Draw Low Bids, The Wall Street Journal, Pg. A5.