The latest BGL Industrials Insider report by Brown Gibbons Lang & Company shares that while building products M&A activity has slowed, the pipeline of opportunities continues to grow as sellers await the opportune time to market their businesses amid uncertainties in the housing market and the broader economy. Despite headwinds, buyers continue to seek high-quality building products acquisition targets with strategic buyers leveraging the current buying environment to acquire tuck-in opportunities and private equity firms looking for platform investments at attractive valuations.
Key takeaways
- The long-term outlook for the building products industry remains favorable.
- While market uncertainty has left some investors sidelined, strategic buyers are leveraging their capital and synergies to complete accretive add-on acquisitions at reasonable valuations.
- The financing market has pulled back leverage but continues to show appetite for high-quality assets.
- Consolidation is continuing, with technological innovation and supply chain management cited among the drivers of acquisition activity in the coming months.
Industry Outlook
The report also features insights from executives at Validor Capital, Renovo Capital, Drum Capital and Stax, which address diverse building products industry trends, ranging from the demand outlook and operational challenges to M&A and valuations.
"I think there are some innovative ways that property management companies and developers are thinking about multi-family going forward, which means that they're still putting concrete in the ground and they're going to continue to develop. I continue to think that building and development is going to continue in a positive way. The question, is it more of a positive trend off of 2019 or 2022." — Chris Ayala, Managing Director, Drum Capital
"We've talked to a fair number of builders, and the sentiment right now is that they're getting bullish on the market reemerging towards the end of 2023 or start of 2024. Although cost continues to be high for some raw materials and supply chain constraints are still impacting the market for certain materials, our view is that these factors are now starting to stabilize. There is an expectation that inflation will continue to course correct in a positive way over the next six to 12 months." — Matt Fish, Managing Director, Stax
"We continue to believe fundamentally that residential new construction and repair and remodel are going to be good markets. The fundamental strength of the demand factors, the drivers that we have all read about over the past five years—housing shortages, the boomers changing over and changing their locations, the next generations coming up and being buyers—all those factors will continue to drive reasonably good or stable businesses and residential growth." — Scott Lavie, Managing Director, Renovo Capital
"In the R&R markets, we believe tailwinds will include low housing inventory, aging housing stock, the possibility of persistent inflation exceeding 2%, making home improvement investments a more practical decision, and a significant number of homeowners who have recently refinanced their homes at very low rates during the pandemic and are now effectively "locked-in" to their homes for the foreseeable future." — Matt Kaufman, Managing Director, Validor Capital
