Between commercial and residential markets, private equity firms invested in construction saw varying levels of success as the industry ebbed and flowed since the pandemic. Now, industry professionals are identifying new opportunities that are less reliant on large projects and more focused on strategic relationships to build a more cohesive portfolio. Here’s how:

Alex Mironov, a managing director of M&A with Generational Group, a Richardson, Texas-based M&A advisory firm and financial services provider, tells Mergers & Acquisitions that building services industries in parallel to the construction field have gained traction since the onset of the Covid pandemic. Interestingly, dealmakers within these industries have found most of the success on the back of maintenance work.

“The recurring revenue like re-roofing, HVAC maintenance, and maintenance contracts became huge there as well, so it really just became a great new world for private equity in the construction field,” says Mironov. “There’s a big push and it’s sort of always been there: repeat, recurring revenue.”

So much of construction is project-based. Private equity firms are now looking at construction targets that are able to differentiate through established, long-lasting or even new relationships with builders, third-party administrators, insurance providers or private equity groups that already exist with real estate holdings.

Looking at roofing specifically, contractors within the sector can increase revenues and long-term contractual opportunities through relationships with insurance providers will better differentiate themselves as targets and provide opportunities for buyers.

“Say you’ve got an HVAC company that’s working with a large builder; you immediately have an opportunity there to come in with your roofer that you just acquired and establish a long-term relationship there with tons of repeat revenue. So portfolio synergy definitely is a trend that we’re seeing.”

Focusing on growth, Mironov says, “Growth efforts focused on diversification seem to be the overarching theme throughout the industry. Folks who are heavily focused on new construction, you’re going to try to pivot there and find some maintenance work. It really is a matter of diversification there and building out relationships that both generate repeat revenue and establish these relationships.”

What kind of construction services have been grabbing your attention. Let me know at [email protected].

Cole Lipsky