Building Products Market Update – July 2022

Volume in the Building Products Market Has Remained Steady With Healthy Construction Backlogs

Capstone Partners released its July 2022 Building Products Market Update, reporting that healthy construction backlogs have persisted in recent months despite continued supply chain challenges, elevated inflation, and widespread economic uncertainty. The robust pipeline of projects has provided ample demand for building product providers serving nonresidential and residential contractors.

Healthy Construction Activity Continues Amid Macroeconomic Headwinds

Merger and acquisition (M&A) volume in the Building Products sector has trailed the prior year’s pace, falling 24% year-over-year (YOY) with 120 transactions announced or completed year-to-date (YTD). However, YTD volume remains in line with historical levels, owing to sustained consolidation interest among strategic buyers. Strategic and financial buyers have also allocated healthy levels of capital to complete acquisitions, with the total disclosed value for YTD M&A transactions exceeding $22.2 billion—outpacing the YTD 2021 total value of $20.1 billion. Interest rate increases may place downward pressure on transaction financing and borrowing through the second half of 2022. However, privately owned businesses with robust backlogs and favorable end market exposure are poised to continue to encounter solid buyer interest.

Strategic buyers have comprised a majority of transaction volume through YTD 2022, accounting for 68.2% of M&A. Public strategics (19.4% of YTD transactions) have been active and have recently facilitated several large-scale acquisitions at healthy valuation multiples. Private strategic buyers continue to drive the bulk of M&A activity, comprising 48.8% of volume. While trailing the overall transaction count of strategics, financial buyers have continued to deploy capital to the space (31.8%), particularly as select sponsors have realized substantial returns upon exit from their portfolio companies.

M&A valuations in the Building Products sector have remained steady, with an average EBITDA multiple of 9.8x through YTD 2022. This marks a slight decline from the 10.2x EV/EBITDA average in 2021. Sector transaction multiples have also remained healthy in the middle market, below $500 million in enterprise value, averaging 8.2x EV/EBITDA.

Also included in this report:

• Commentary on the Coatings, Adhesives, Sealants, and Elastomers market and its growth outlook.
• Key M&A transactions that have been announced or completed in recent months.
• Performance metrics for public companies in the sector.