Some sectors still lag in embracing technology and digital transformation that so many industries are going through. Construction is one such sector. And that means M&A opportunities for strategic and private equity buyers.

“You are definitely seeing M&A in this space in particular accelerating because you have more mature technology platforms,” says Andrew Henderson, managing director at FMI, a Raleigh, N.C.-based investment bank. “People are actually in a position to get acquired and it’s not just folks looking for seed funding. It seems that the construction tech space is becoming more and more correlated with the broader tech market.”

So how are acquirers taking advantage of a fragmented construction technology subsector?

What Strategic Buyers are Telling Us

“We’ve done a ton of research about what homeowners actually want from their doors,” Masonite CFO Russ Tiejema tells Mergers & Acquisitions. “And they consistently told us they want more technology and innovation.” That includes better light transmission, security and access control.

In November, Masonite International Corp. (NYSE: DOOR), a maker and seller of doors, acquired Greensboro, N.C.-based Endura Products, a manufacturer of door frames and other door parts, for $375 million. Tiejema points out that Masonite has known Endura for years as a customer. He mentions that the two companies’ similar philosophies around innovation made them a natural fit to come together.

In 2022, Masonite launched a product called M-Pwr, which Tiejema claims is the first connected door system in the industry that Masonite developed with Endura products. The system has a Ring video doorbell embedded into the door itself along with a smart lock.

“We’re interested in assets around the door,” Tiejema says. “People have been putting technology onto the door, and we want to start looking at ways of embedding it into the door system itself. Those are the types of assets we’ll look at.”

Andrew Henderson, FMI

More Data Needed

Data and analytics are increasingly becoming an important resource for construction companies, especially for smaller companies to allow them to compete with the larger players. These tools can help businesses with a number of things ranging from pricing projects to marketing.

In October 2022, Dodge Construction Network, a provider of information and insights for the commercial construction industry, and backed by Clearlake Capital Group and Symphony Technology Group, bought Principia Consulting. Principia offers data, research and market intelligence focused on the building materials industry. “To stay competitive in today’s market, construction leaders require expert insights within the industry and specific markets,” the companies said at the time. Clearlake invested in DCN in January 2022.

“Those companies who have invested in technology can enhance their attractiveness to buyers,” adds Matthew Joblove, a principal at Sun Capital Partners. “A buyer might view a company that has invested in technology as having an advantage relative to competition or having access to higher quality data that can help the business operate more effectively day-to-day.”

We Need to Go Digital

Customers don’t like waiting weeks or months — or even days — to get design ideas and prices from contractors. Some companies in the industry want to change that and this is where digital technology will come into demand. This can include visualization software in showrooms to using iPads to manage projects.

“I think collaboration tools are really big,” says Henderson. “People are paying up for those. One of the issues that is leading to construction lag is that you have construction sites all over the place and management is not always centrally located in making decisions. The more you can have these collaboration tools to have the ability to centralize data, centralize projects and to centralize thought in general, that seems to be one of the more value-add solutions that can help a broad spectrum of construction firms.”

West Shore Home, which specializes in bath and shower remodeling along with window replacements, recognizes the need for digital transformation in the construction industry. In 2022, the Mechanicsburg, Pa.-based company acquired Design Center, which focuses on mobile app development, virtual reality services and custom software.

West Shore CFO Philip Brenckle says that Design Center adds custom software to West Shore’s services that the company was previously lacking, and also adds a roster of talent in tech developers. “We’re in the golden age of software,” he says. “Ten years ago, SaaS wasn’t a thing.” West Shore has its own iPad app where homeowners can customize their bath, shower or window projects.

Brenckle adds that West Shore is not aggressively looking for tech deals but will keep its ears open if one comes up that is a fit. “We’re looking to acquire businesses that are in similar positioning to us,” Brenckle tells Mergers & Acquisitions. “This is a highly fragmented business, although in the last three years there’s been massive consolidation as private equity has seen our model and has wanted to get into it.” According to the Market Research Future Report, the construction software market is project to surpass $2.7 billion in 2023.

West Shore is focusing on expanding geographically in cities such as Kansas City, Cleveland, Las Vegas, Orlando, Jacksonville and Des Moines, Iowa. Leonard Green & Partners owns a stake in West Shore.

West Shore is not the only construction company that is looking to grow geographically through acquisitions. Earlier in 2023, LightBay Capital and Freeman Spogli & Co. acquired Infinity Home Services, a provider of residential roofing replacement and other exterior home services. New Berlin, Wis.-based Infinity has made eight add-on acquisitions since it was founded in 1997, expanding its presence throughout the Northeast, mid-Atlantic, Midwest, and Pacific Northwest regions. Infinity says its goal is to help businesses accelerate through technology. Infinity has an app that allows its sales team to quote projects and manage sales processes.

“The case for M&A in construction tech is much strong than it ever has been before because there are so many more opportunities for these firms to expand much more rapidly,” says FMI’s Henderson.