Construction M&A outlook: Poised for growth, but uncertainty looms

In an environment marked by economic fluctuations and industry transformations, the construction services mergers and acquisitions (M&A) landscape mixes challenges with opportunities. Significant M&A activity may be on the horizon, driven by structural changes within the construction sector, despite current headwinds.

A cautious approach to current market conditions

Deal volume in construction remained relatively steady in 2024 compared to prior periods, though the first quarter lagged slightly behind the previous three quarters. April has proven particularly challenging for overall M&A activity, reflecting broader economic concerns that inevitably impact the construction sector.

Despite these challenges, optimism remains to ensure that, if market conditions can find some stability, dealmaking can continue. This stabilization could provide dealmakers with the confidence needed to move forward with transactions that may have been delayed due to macroeconomic uncertainty.

The impact of private equity

One significant trend reshaping the construction M&A landscape is private equity’s growing comfort with the sector. Historically hesitant about construction’s project-based nature, private equity (PE) firms have warmed to the industry’s potential.

The industry has observed a notable shift in private equity’s approach to construction services:

• PE firms now recognize the value of large construction projects as entry points for customer relationships.
• These relationships lead to attractive maintenance, repair and operations work.
• The recurring revenue component makes construction services increasingly appealing investment targets.
• Financial buyers particularly value predictable cash flows generated by service-oriented business models.
• Transaction volume from PE groups has increased relative to strategic construction acquirers.
• The highly fragmented nature of some construction service subverticals presents attractive opportunities for PE-backed platforms.
• Many construction firms have accumulated significant technology and process debt through underinvestment, creating value-added opportunities for investors.
• PE’s evolving perspective has expanded the potential buyer pool for construction service businesses.

This evolution represents a significant change from historical perceptions when construction was viewed primarily as a project-based, cyclical industry with challenging investment characteristics.

Premium valuations for specialty services

Not all segments of the construction industry are equally positioned in the current market. Specialty construction services businesses — particularly those with service-oriented, recurring revenue models in fragmented industries — continue to attract significant interest from acquirers.

Services businesses in the construction space, especially subcontractor-modeled operations in roofing, garage door installation and repair, mechanical contracting, HVAC, plumbing and electrical work remain highly attractive to buyers seeking established platforms with growth potential.

The market continues to reward excellence, even amid uncertainty. Class A assets with compelling growth trajectories, strong management teams, attractive financial profiles and the optimal mix of maintenance and repair work versus retrofit new build continue commanding premium valuations. Businesses focused on “break/fix” restoration or retrofit services in particular command higher multiples than pure new construction operations, reflecting the more stable, recession-resistant nature of repair work.

Quality businesses will find buyers regardless of market conditions, though perhaps not with the same abundance of options as in more robust markets.

Transition challenges driving M&A consideration

Beyond market conditions, fundamental shifts within the construction industry are driving M&A activity. Many construction companies face significant transition issues that make M&A their most viable exit strategy.

First- and second-generation construction companies can often reach their target revenue threshold through operational excellence and timely project delivery. However, scaling past a certain point requires a level of sophistication and infrastructure that many family-owned businesses struggle to develop organically.

This infrastructure includes:

• Standardized processes.
• Technology adoption.
• External C-suite talent acquisition.
• Capabilities development for emerging sectors like data centers.

The capital requirements and organizational changes needed to remain competitive increasingly make partnerships or acquisitions attractive alternatives to internal development.

The inevitable market activity from demographic shifts

Perhaps the most powerful force shaping the construction M&A landscape is demographic reality. An aging population of business owners will drive significant transaction volume in the coming years, with industry estimates suggesting approximately 10 million baby-boomer-owned businesses will change hands in the next few years, representing a collective value of around $10 trillion.

This generational transfer coincides with market consolidation trends, creating pressure for business owners to consider their long-term plans. Many construction business owners have traditionally undervalued their businesses, thinking primarily about tangible assets rather than transferable business value, including brand equity, customer relationships and operational systems.

The opportunity of supply-demand imbalance

The current market presents an interesting imbalance that will eventually correct itself, potentially triggering substantial M&A activity across the construction sector.

• On one side, there’s a significant pent-up supply — businesses that will eventually need to transition ownership.
• On the other side, there’s substantial pent-up demand, with private equity firms holding record levels of uncommitted capital and strategic buyers maintaining cash-rich balance sheets following years of limited capital expenditures during uncertain economic conditions.

This convergence of supply and demand factors suggests an inevitable increase in transaction activity, though timing remains unpredictable. Preparation rather than prediction is key, since attractive businesses continue finding buyers even in challenging market conditions.

Don’t time the market, plan now

Strategic planning should begin now, regardless of when business owners anticipate exiting. Conversations with advisors about business valuation and enhancement strategies represent critical steps in maximizing enterprise value, whether for near-term or long-term transition planning.

Understanding market forces and assessing strategic positioning remains essential for construction industry leaders. Companies must evaluate whether they can achieve growth independently or require partnership to reach their objectives.

The construction industry faces persistent talent challenges that make growth imperative. Companies must create advancement opportunities to attract and retain skilled professionals in a competitive labor market, positioning growth as both a strategic and operational necessity rather than merely a financial objective.

Using challenging times strategically

Economic uncertainty presents strategic opportunities for forward-thinking construction companies. Slower periods allow time for transition planning, exploring growth strategies or considering opportunistic acquisitions of struggling competitors.

Diversification becomes more feasible during challenging periods when core markets experience slowdowns. For example, companies primarily focused on institutional work might explore homeowner association or commercial opportunities, leveraging existing capabilities in adjacent markets with different cyclical patterns. Businesses focused on residential services, similarly, might benefit from growing the commercial side of their operations.

These challenging periods can highlight operational and strategic gaps within businesses, creating opportunities for targeted improvements that position companies for future success whether as independent entities or acquisition targets.

Looking ahead: Preparing for inevitable acceleration

Construction business owners face a fundamental choice in today’s market: grow or sell. Stagnation typically leads to decline as more aggressive competitors capture market share and talent. This reality makes M&A market awareness valuable regardless of a company’s immediate transaction plans.

For potential sellers, understanding current valuations and enhancement opportunities provides crucial planning data. For potential buyers, market intelligence reveals acquisition strategies employed by successful competitors and highlights potential targets that complement existing operations.

The tariff situation remains a concern for the building products sector, with potential implications for construction services companies that must manage supply chain and pricing challenges. This uncertainty contributes to the current slowdown in deal volume, as business owners prefer to bring companies to market during periods of greater macroeconomic certainty.

Nevertheless, industry experts maintain confidence that transaction activity will accelerate when market conditions stabilize. The fundamental drivers — aging ownership, succession challenges, technology investment requirements, and talent acquisition needs — remain powerful forces pushing construction companies toward strategic transactions.

For construction business owners, the message remains clear: Regardless of current market conditions, strategic planning for growth or transition should remain a priority. Whether as buyers or sellers, companies that prepare thoughtfully will be best positioned when market activity inevitably accelerates as demographic and financial pressures force increased transaction volume.

How Wipfli can help

Wipfli’s team combines M&A experience with deep construction sector knowledge to help business owners navigate today’s complex market. Whether you’re planning growth through acquisition or preparing for an eventual exit, our advisors provide valuation insights, enhancement strategies and transition planning tailored to construction’s unique challenges. We help position your business to maximize value in any market environment. Contact an advisor today.