More Construction-Related M&A Expected in 2017

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Despite some weakness in July and August, construction spending during the first eight months of the year was up, driving M&A among a wide array of related subsectors, from hardwood to foam insulation. Dealmakers who invest in construction-related businesses said there’s still plenty of room for growth, expressing optimism about the future at the 2016 Building & Infrastructure Conference, hosted by Lincoln International and L.E.K. Consulting on Sept. 30 at the New York Athletic Club.

“While economic indicators demonstrate growth, we are still operating well below historical averages,” said conference organizers in a letter to attendees. “For instance, five years into the recovery, residential construction spending is currently 66 percent of prerecession levels. Multi-family activity has driven the recent residential construction growth, and single-family activity remains below its long-term average. The repair & remodel market continues to grow and is now above its previous cycle high. Nonresidential construction, which typically lags residential construction by 18 to 24 months, has shown signs of a recovery and remains below prerecession highs.”

“It’s slow moving right now, but we’re really looking forward to 2017,” said Dan Counsell, manager of mergers and acquisitions at Kohler Co.,  a manufacturer of plumbing products based in Kohler, Wisc. “The quality of deals is much better right now,” says Counsell. Earlier in the year, there were transactions in the $100 million range. Now they’re in the $500 million to $1 billion range, he reported.

Dealmakers said they’re seeing pockets of growth throughout the country. One fruitful area is Texas, related to infrastructure spending, said Tim Meyer, co-founder of Angeles Equity Partners LLC. Founded in 2014 by Meyer and Jordan Katz, both formerly with the Gores Group, Angeles is a Los Angeles-based firm that invests in the industrials sector. The firm recently acquired a controlling interest in ERP Power LLC, a Moorpark, California-based maker of components used in LED lighting.

Looking ahead to 2017, the repair and remodel market is expected to grow, especially in commercial buildings, said Chris Kenney, managing director, L.E.K. Consulting.

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