The demand in the building products sector has been continuing unabated, largely due to construction spending, investment in infrastructure and long-term visibility on many construction projects. Whilst the sector continues to deal with labour-related issues, the positivity from a reduced interest rate environment will only spur more spending on construction.

Ongoing infrastructure and non-residential construction has long been a key driver for the sector. Although it is expected that residential construction will return quite forcefully and as a result it is expected that building products businesses are in form a period of strong growth.

It is also expected that demographics will play a significant part in the growth of the building products market. With an aging population, there is likely to be more retirement age people looking to trade their properties, whilst the ever expanding millennials segment of the market will be looking for first time, and in likelihood, new build properties.

Meanwhile, there is of course a greater focus on ESG and sustainability issues right across the market. As  result, players will also look to adapt their materials, with an increasing move away from plastics towards timber.

As a result, a material increase in mergers and acquisitions (M&A) activity in the building products sector is expected. Whilst many building product companies play in mature markets, with low long-term growth, many of these players are increasingly targeting the addition of complementary product offerings, cost synergies and geographic expansion.

The forecast is that there are going to be considerably more M&A transactions taking place in areas such as building information, electrical products, electronics, off-site manufacturing and robotics.  With this, there will be greater shift towards efficiencies in building products as players look to overcome higher material costs and labour shortages, by moving to pre-fabricated and turnkey construction solutions.

The result of all of this will have the following impacts:

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• The aggregates segment is being driven in particular by increased expenditure on infrastructure, with the rail sector being a particularly crucial end market, with rail transportation being more carbon efficient.

• The interior and exterior building products segment remains a key driver in both commercial and residential applications, with a greater focus on sustainable solutions in both areas.

• The safety and security segment is becoming of paramount importance, with important opportunities across access control, building technology, connected homes, fire control, perimeter security and video surveillance.

• The timber segment is growing in prominence, as a considered key alternative to metal and plastic materials.

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Meanwhile, private equity investors will continue to play a key role in M&A in the building products sector. They are able to facilitate the strategic combination of important smaller and mid-sized players. They can thus create new substantial players with competitive advantages, which will then be ultimately be acquired by the large groups.

In terms of valuations in the building products sector, the range of multiples paid for businesses can vary from anything between 6x and 10x EBITDA. Significantly, any players in the attractive growth segments of automation, digitalisation, safety and security and sustainability can attract valuations at multiples at much more than this.

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Constantine Biller is a Partner at Shaw & Co

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If you'd like to discuss how Shaw & Co can help you sell, buy or fund the growth of a business, please book a meeting here

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