Industrial unitThe Great Recession took its toll on middle-market construction companies. The heavy infrastructure sector dropped an average of 1.4 percent annually from 2008 to 2013,1 while the commercial building sector sank at an estimated average annual rate of 1.7 percent from 2009 to 2014.2

This trend seems to be reversing course, however, according to market research firm IBISWorld. As the economy slowly recovers, the firm estimates that both construction sectors should see annual growth rates around 4 percent over the next 4 to 5 years.1,2

At the same time, middle-market construction companies will face new challenges in the years to come. How business owners choose to face these challenges will predicate their ability to succeed in today’s economy.

Challenges Unique to Heavy Infrastructure Construction Companies

Heavy infrastructure projects come with notoriously long lead-times and life cycles due to the massive size of these projects and the reality of navigating government bureaucracies. During the recession, government cutbacks put a squeeze on these jobs, resulting in the private sector percentage of the market growing to 55 percent share in 2013.1

Smart Strategy: Business owners in the sector can increase their opportunities for growth if they research and prepare their organizations for taking on private sector work. Players in this market are wise to closely monitor the local, state and government contracts available for bid, and evaluate and improve their abilities to secure contracts, in order to succeed.

Challenges Unique to Commercial Building Construction Companies

According to IBISWorld, the commercial construction sector typically lags two years behind the overall economy based on project length and pipelines. Speed of recovery is also dependent on consumer optimism about the economy and the associated willingness to spend their hard-earned cash.

According to Lynn Franco, director of economic indicators at The Conference Board, while optimism dipped slightly in April, “consumers do not foresee the economy, or the labor market, losing the momentum that has been building up the past several months.”3 As consumers slowly increase spending, businesses will need to ramp up production and the demand for commercial building structures will grow in the coming years.

Smart Strategy: Business owners in the commercial building construction sector need to be prepared to stay the course as their sector slowly recovers. They also need to have a plan in place to grow rapidly as demand increases. Seeking out help from private equity in the form of capital and industry resources could help ease tight profit margins and sustain steady growth.

Challenges and Opportunities Common Across the Construction Sectors

As the economy grows, middle market construction company CEOs will need to prepare their organizations to be competitive and responsive as demand for construction contractor services expands. Competition for skilled labor will be an ongoing challenge, and new technology that improves efficiencies will be necessary for long-term profitability.1,2

Smart Strategy: CEOs should start planning now to enhance human resources capabilities and invest in R&D. Business owners in the construction sectors should be proactive regarding how they will attract, train and maintain the best skilled workers in the market.

They should also look for ways to improve efficiencies through new technology either through internal R&D resources or M&A opportunities. Private equity investors are looking for middle-market companies to grow their portfolios and therefore are a good path to investigate.

A Qualified Investor Can Give Construction Companies the Edge

The right investor can provide the capital, access to technology, leverage with suppliers and industry expertise to help middle-market construction businesses grow. If you would like to weigh your options for M&A or with private equity, speak with an investment banker who serves business owners in the middle-market construction niche.

Photo Source: © jelwolf – Fotolia.com

Resources:

1. “23499 – Heavy Infrastructure Construction in the US,” [report]. IBISWorld. December 2013.

2. “23332a – Commercial Building Construction in the US,”[report]. IBISWorld. January 2014.

3. “The Conference Board Consumer Confidence Index® Falls Slightly in April.” Consumer Confidence Survey, April 29, 2014. The Conference Board. Available at https://www.conference-board.org/data/consumerconfidence.cfm. Accessed May 7, 2014.

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Keywords: middle-market business owners; CEOs; investment banker; investment bankers; M&A; M&A opportunities