Strategic M&A remains active in the Building Products industry despite a decline in the housing market, according to a research report released by the Building Products investment banking team at Brown Gibbons Lang & Company. Industry players continue to pursue acquisitions that are in line with their long-term strategies, with transaction activity expected to be led by strategic buyers heading into 2023.
While building products companies are navigating a near-term housing market slowdown, many economists expect the current cycle to be shorter-lived and less severe than previous housing recessions. Declines in home prices and new construction are not anticipated to reach near-2008 levels. Further, existing secular trends provide the underpinnings for substantial long-term growth:
- Demand for affordable homes far exceeds supply. Industry sources estimate the housing shortage in the U.S. stands at 3.8 million to 5.8 million homes, an imbalance that will take years to correct.
- The trend of consumers investing in their homes is expected to continue. Houses built during the 2003-2007 housing boom are coming into their prime renovation age, providing a foundation for growth in the repair and remodeling market, which is forecasted to see expansion through much of 2023.
- Millennials, the largest segment of the population, are entering their prime home buying age and should help boost long-term demand. Millennials have made up the largest share of home purchase mortgage applications for the last six years, with share rising to its highest level in 2022. Demand from younger millennials is expected to remain strong in the coming years.
The building products M&A landscape is evolving. For strategic buyers and private equity investors, 2023 could present a unique opportunity to acquire premium assets at reasonable valuations, setting up for robust future growth as the U.S. seeks to correct its housing stock supply and demand imbalance.