Demand remains strong for construction materials products despite a recent uptick in recession fears.
At first glance, lower sales volumes might suggest a weakening construction market. But if you examine each specific vertical (i.e., residential, nonresidential and infrastructure), there are reasons to be confident in the market’s outlook. Road and highway construction, for example, is still in the early to mid-innings of Infrastructure Investment & Jobs Act funding.
“[T]he outlook is robust, with demand in the United States underpinned by the continued rollout of a once-in-a-generation federal and state investment program,” says Albert Manifold, CEO of CRH. “There are tailwinds for specific segments of nonresidential construction such as manufacturing factories and data centers for artificial intelligence.”
Similarly, Holcim CEO Miljan Gutovic discussed how his company would be providing low-carbon concrete to Amazon, which he describes as planning to build more than “90 data centers … over the next four years – [half of which are] in the U.S.”
The wild card is residential construction. A big factor impacting residential is interest rates.
If the Fed were to cut rates later this year – as many expect – this could spur residential development and further strengthen overall growth within the construction materials sector.
Conclusion
The timing is primed for M&A in construction materials.
Higher cash flows, combined with positive macroeconomic dynamics and strong market trends, have created a bull market for the industry. Privately owned construction materials firms looking to maximize the value of their assets should consider utilizing a broker to facilitate a transaction.
As Brian Gray of Knife River discussed on the company’s earnings call, a brokered auction process typically drives “higher multiples than the ones that [can] be negotiated.” Separately, CRH has continuously called this market the “golden age of U.S. construction.”
Perhaps we can say the same for construction materials M&A.
George Reddin, Rob Mineo and Evan Coughlin are with FMI Capital Advisors.
