Construction & the M&A Market (under $25 million revenues)

This is the 1^st in a series of short articles and updates about the construction and housing markets that we will be writing. We have two goals: 1/ provide a summary of industry happenings and 2/ describe the impact these changes have had/are having on business owners who are selling or “exiting” their businesses. We would love to hear your thoughts, comments or questions. We want this to be both light and informative, and we appreciate your feedback. Thanks.

Let’s get started. Our top-10 comments and observations are as follows:

1. The housing market is (still) “stuck.” New starts for 2011 are 44% below the 2000 levels;
2. 1^st Qtr 2011 sales are flat, and housing inventory, expressed in number of months on hand, has increased;
3. Regional/small builders face fierce competition from national builders;
4. Homeowners have less cash to spend on home improvements and expect contractors to “do the same work for less money;”
5. Contractors saw signs of recovery during the 1^st Qtr of 2011, but are concerned with some leading indicators showing the momentum could fade by the 4^th Qtr;
6. Some optimism that new regulations for “green” applications could drive a large part of the recovery;
7. Acquisition Advisors Outlook reported that business owners selling their businesses during 2008-2010 got caught in a “sluggish” market (some of the owners we talked to described it differently…). Deal activity in 2009 was less than 2008's results with some uptick in activity noted during the 4^th Qtr of 2009;
8. For the 6 months ranging from 11/10 – 4/11, stats published by MergerNetwork indicated that, based on the number of active buyers and sellers looking for deals, we could be returning to a more stable buy/sell market;
9. A survey of construction owners reported that 40% believed there would be an increase in buy/sell activity in 2010 and 2011; and
10. Buyers with capital (i.e., “financial buyers”) are aggressively hunting for acquisition opportunities.

Harvest Time: The construction industry is still “quirky,” and “quirky” translates into market uncertainty. It’s just like any other market: When there is market stability, good things happen. There are some very encouraging signs…let’s see where they go. Stay tuned …