The home construction industry is facing “unprecedented challenges” particularly supply chain issues which is leading to a rise in raw materials. Despite that, one investment banker is still optimistic about M&A in the sector. Bryan Wallace, a managing director at Bridgepoint Investment Banking tells us why.

“The home building market in the United States is highly fragmented,” Wallace says. “Many of the smaller builders are family and founder-owned and are engaging in succession planning and exit planning for retirement. Many of these owners fall into the “Boomer” demographic and have spent their life and career building their business and reputation in the marketplace and are now looking to cash in on that life’s work, provide for their family, and retire. M&A consolidation is also being driven by large home builders who are looking to add scale and capitalize on opportunities in new geographies.”

Bridgepoint recently advised Davidson Homes on its capital raise from Searchlight Capital. Davidson is a Huntsville, AL-based home builder that focuses mainly on the Southeastern U.S. Wallace says the home building sector is reliant on local economic trends, but companies that have a good strategy in place will still see growth.

Wallace also warns that a potential economic downturn may slow dealflow, but at the same time, the demand for new homes is still there and contractors who can’t keep up will look for acquisition opportunities.

“Demand remains high at various price points and builders are struggling to keep up with demand in specific markets,” he says.

Demitri Diakantonis