Building Products M&A Trends: Market Conditions Will Create Buying Opportunities Amid Short-Term Market Challenges
Investor sentiment continued to remain cautious towards the Building Products industry in Q1 2023 as rising mortgage rates, elevated home prices, and fears of a potential recession continued to weigh on the U.S. housing market. Deal volume fell to its lowest levels since Q3 2020 when the COVID-19 pandemic temporarily halted M&A markets. As new construction activity remained at reduced levels versus record- setting new builds experienced during the first half of 2022, incoming order activity, backlog trends, and sustainability of earnings have become key diligence items for investors.
With housing starts declining 18% year-over-year to an annual rate of 1.45 million in February 2023, investors largely stayed on the sidelines for opportunities that were heavily exposed to new construction. Exceptions remained for special situations and high-quality assets that have been able to mitigate risk through strategic positioning in high-growth geographies such as Florida, the Carolinas, and Texas.
The repair and renovation market proved to be in higher demand as consumers continue to invest in their homes environment and have been more willing to take on home improvement projects to supplement their existing home in lieu of purchasing a new home in today’s market. Despite repair and renovation activity expected to continue to grow into 2023, investors have ramped up their due diligence as buyers work to unpack the growth experienced in 2021 and 2022.
The commercial construction market has remained in demand despite rising interest rates. Many jobs were delayed in 2021 and 2022 due to labor and supply chain shortages which have left companies with record-setting backlogs that have given them good visibility into the next 12 – 18 months.
For M&A transactions that have been completed, valuation multiples have come down one to two turns on full-year EBITDA as investors discount recent performance and the lending markets have pulled back available financing. Market conditions will create buying opportunities for those with the capital and ability to sustain short-term market challenges.
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Our Building Products investment banking team is highly experienced in the residential and commercial construction and infrastructure segments. We have successfully completed transactions across a wide range of end markets, from basic building materials such as aggregates, lumber, and pavers and pre-cast products, to complex fenestration extrusions, glass fabrications, curtain wall, and highly engineered specialty coatings products.
Led by Andrew K. Petryk, BGL’s Building Products team leverages its industry knowledge and global relationships to execute highly effective and efficient transactions on behalf of our clients. Please reach out via our contact form below to learn more.