After a Record Run, Construction M&A Deals Are Stalling

According to a banking official, a resurgence in mergers and acquisitions might happen later this year as economic confidence and financing circumstances are seemingly changing for the better.

The mergers and acquisitions market for construction and engineering firms has slowed due to high financing costs and lingering recessionary fears, according to Tristan Tahmaseb, vice president at ButcherJoseph & Co., an investment banking firm based in St. Louis.

The $1.2 trillion Infrastructure Investment and Jobs Act, the $52 billion CHIPS Act, and the $485 billion Inflation Reduction Act all provided public financing, which contributed quite a lot to the post-pandemic spike in M&A activity.

Impact of Financing Environment

The current funding environment has contributed to a slowdown in M&A trends.

But still there is a big amount of uninvested capital that is available.

High-performing businesses continue to attract interest, while the stagnant companies struggle to find buyers.

Pandemic’s Influence on M&A 

The pandemic played a  big part in speeding up M&A activity in the construction sector, particularly in 2021 and 2022. Historically low interest rates made financing acquisitions and new projects more cost-effective for construction companies. This encouraged businesses to pursue growth through M&A activities.

Staffing shortages and regulations at the time led to delays in project timelines. Companies are still contending with the backlog of the projects they got during this time. A company’s backlog of projects has become a big factor in recent construction transactions. Recent economic uncertainties have unfortunately raised some important questions about the value of these backlogs.

Outlook for the Rest of 2023 

Now the question is what can we expect for construction M&A in the last few months of 2023?

Resurgence in M&A Activity

M&A activity is projected to pick up in the latter half of 2023. Contingent of course on improved economic confidence and more stable financial conditions.

Opportunities for Investors

Investors that are set on optimizing their resources may find opportunities to acquire businesses that went public during the post-COVID surge.

Focus on Strong Players

Companies with strong financial positions and purchasing power will actively seek strategic assets to solidify their positions as industry leaders.

A home market revival could even present rare opportunities for investors that are interested in engineering and construction.

Exploration of New Markets

M&A activity will be driven by trends toward emerging markets, with a focus on industries like data centers, transportation, and healthcare.

Businesses catering to these trends may command higher valuations from both financial and strategic buyers.

The Importance of Location

Geographic location continues to be an important factor in M&A, with certain regions attracting quite a lot of buyer interest.