Understanding the Balance: An Analysis of the 2018 Construction Materials Market and M&A Expectations for 2019
Looking back, 2018 was a “tale of two halves” for the construction materials (CM) sector, both for performance and M&A activity. The year started off with great optimism: 2017 was a banner year for M&A, the new tax bill (TJCA) went into effect in January of 2018, and the market anticipated an infrastructure stimulus bill early in the season. As a result, publicly traded CM stocks reached new highs in January 2018, and private companies looked forward to another record year. M&A activity was at a level the sector had not seen since prior to the financial crisis in 2008. While there was talk about the next economic downturn and concerns of the sector being in a period of peak earnings, all major buyers were actively looking for deals, creating a “frothy” M&A market.
2019 is lining up to be the “show me” year for CM performance, as stock/M&A investors will be watching closely for a recovery from the negative developments of 2018. The market will be anxious to see earnings results in the first and second quarters, validating positive predictions. Healthy backlogs and a return to normal weather should support strong performance. Favorable first quarter earnings have the further potential to increase EV/EBITDA multiples, which had been trending downward in 2018.
Lastly, continued progress with state funding initiatives and any momentum on an infrastructure stimulus bill could also boost the outlook for the second half of the year and beyond.
Read our full report for details about market conditions.
