16 Jan Building Products Industry Update – Q4 2019
Despite continued trade tensions, geopolitical unrest, and weakness in global demand, the U.S. economy entered its 126th consecutive month of economic expansion – the longest in U.S. history.
Strong performance across numerous key market indicators, including a low interest rate environment and unemployment at the lowest levels in nearly 50 years (3.6% as of October 2019), is creating strong tailwinds for the building products sector. Strength in the housing market is evidenced by leading indicators, including an increase in home starts, rising home ownership, and robust home remodeling activity, all pointing to continued economic strength and market demand.
Demographic trends, particularly those driven by millennials will likely also fuel opportunities for the building products sector. In pursuit of better wages and conveniences of urban living, millennials are increasingly drawn to urban areas and are creating an increased need for multi-family units, where demand continues to outpace available supply.
With economic growth promoting activity across both residential and commercial construction, lack of housing inventory, affordability, and increasing construction & material costs create headwinds impeding higher growth. Access to skilled labor within a tight worker pool also remains one of the most consistent challenges.
M&A activity in 2019 was influenced by the cyclical nature of the sector. The market experienced a modest pull-back in 2019 with 131 M&A transactions, as compared to 184 deals in 2018.
We expect acquisitions to remain a key part of a successful growth strategy for companies operating in this sector. Middle market-sized deals continue to be an area of focus, with strategic buyers making a series of smaller acquisitions to consolidate a highly fragmented market. Particularly of interest are companies that offer emerging technologies such as integrated building solutions to provide an entrance into the intelligent building and Internet of Things (IoT) sector, as well as those technologies that drive cost and energy efficiencies.
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