Deal volumes ‘better than expected’ in resilient UK Building Products & Services sector

• Deal volumes fall by only 6% in 2020
• UK market the most active for private equity investment.

Deal volumes in the UK building products & services sector dropped by only 6% in 2020, falling to levels just above those seen in 2017.

In total, 249 transactions were completed in the UK, with 785 deals worldwide – a decrease of 15.4%. Overall, 5,000 transactions have been completed across the globe in the last eight years.

The latest BDO Building Products & Services sector insight shows the proportion of transactions involving private equity jumped from 22% in 2019 to 32% in 2020 – the highest level in a decade, with the UK the most active market for PE investment. The sector saw an increase in specialist funds, investors driving value from carve-outs, while taking advantage of rapidly changing dynamics in the industry.

John Stephan, global head of M&A at BDO LLP, said: “We’ve seen deal volumes go down over the last 12 months, but not as much as might have been feared. Unlike some other sectors, building products & services is fortunate in being seen as an essential industry and have benefited from positive consumer activity.

“Last year’s influx of private equity cash was undoubtedly triggered by a growing awareness of the sector’s growth potential, as the UK Government doubled down on its infrastructure build-out commitments to bring back the economy after COVID-19. The promise of economy-rescuing infrastructure investments through initiatives, such as the UK’s Build Back Better plan, leaves many building products & services companies poised for a boost in the coming months and years.”

The sector insight report also showed that buy-outs represented nearly a third of all deals in 2020. It highlighted that, even before COVID-19, private equity investors were targeting the sector, because building products & services companies offered interesting possibilities for growth through consolidation and value creation. The preponderance of private equity is expected to help push the sector forward and modernise operations. And, given private equity’s hunger for growth, the report predicts that building products & services could be set for significant expansion in the coming years.

Stephan added: “Despite cross-border transaction activity dipping last year, settling 4.5% below 2019 levels, there is a good chance that British companies will also look to make acquisitions abroad as a result of Brexit. For companies that trade with Europe or have European supply chains, owning subsidiaries on the continent became a more attractive proposition on 1 January.

“As a result, we expect to see a rise in cross-border deals to shore up supply chains after a fall in activity between 2019 and 2020. However, cross-border activity might take a while to pick up as countries worldwide, and particularly in Europe and North America, maintain lockdowns pending vaccine rollouts.”

In 2020, construction output fell by 12.5%. However, in its spring 2021 construction industry scenarios, the Construction Products Association (CPA) has predicted the UK will make up practically all the output lost in 2020.

Forecasts show a 12.9% increase in 2021 and a 5.2% rise in 2022. This is coupled with infrastructure output increasing by 23.9% this year, and further rising by 5.9% in 2022.