While uncertainty, tough decisions and trading challenges pervade industry and society, there are chinks of optimism in the construction and infrastructure sectors. The British Government is committed to “build, build, build” and has announced plans to bring forward £5bn of capital investment projects.
As Lenin so famously said, “There are decades where nothing happens, and then there are weeks where decades happen”. COVID-19 and lockdown have prompted companies to reassess their supply chains and trading relationships. Operational and trading shifts which had started over the past few years have accelerated at speed. As companies seek to adapt to the new market environment, many will find they need to acquire businesses to fill gaps while other business owners may decide they would be stronger as part of a larger group. Merger and acquisition activity will rise accordingly.
Key drivers for mergers and acquisitions will include:
Critical Capabilities – prompted by lockdown, contractors have been forced to re-evaluate critical supplier dependencies; many are looking to control (by acquiring) key parts of their value chain to insulate themselves against future risks.
Growth Through Acquisition – firms will further seek to strengthen their position by consolidating market share and increasing profitability by acquiring rivals or similar, well-aligned companies.
Added-Value Services – some firms offering commodity or industry-standard services will seek to differentiate themselves by adding higher-margin, configurable services such as consultancy, certification or audits.
Scale – firms are improving productivity through ‘sweating their assets’ in technology, plant, materials or similar innovations, but may need to quickly scale up operations (by acquisition) in order to make their business cases work.
Technology – the pandemic’s seismic disruption made it crucial for businesses to have a strong online presence and to equip their frontline workers with effective technology. For those still needing to put this in place, the quickest route will often be to acquire niche providers who understand the sector and are poised to exploit specialist opportunities and capabilities.
Strategic merger and acquisition activity by companies in the sector will be augmented by financial investors keen to back strong management teams with clearly defined growth strategies to take advantage of new opportunities in construction. It will be a busy year for mergers and acquisitions in the sector.
If you or your contacts would like a friendly ear to chat through your options regarding planning for a sale or raising funds please do give us a call on 020 7626 6266.