Concrete producers and other companies linked to construction have taken a big hit the past three years, but investors believe in the sector, according to David Mahmood, Chairman of Allegiance Capital, the Dallas investment bank that represented Jersey Precast during its recent transaction.
“Smart buyers realize the U.S. will have to invest in our infrastructure this decade. We can’t have bridges falling down and highways that are undriveable,” he says. Funds remaining from the $25 billion the government set aside for highway projects in the Economic Stimulus Act of 2009 should continue flowing in 2012, with potentially more to come, Mahmood believes. This investment, plus the albeit slow economic rebound, should result in healthy demand for construction materials and products by 2014, he says, adding, “Investors and strategic buyers want to acquire while the market’s down and be well-positioned to make money when prices are back up and there are fewer competitors.”
Time to sell?
One reason it may be a good time to think about selling a business is that more than 3,000 private equity groups in North America are sitting on $480 billion in investment capital. “They aren’t going to give it back. They’re going to find ways to put it to work,” says Mahmood. “If you own a company that’s performed well in the past, you have a good chance of participating in a transaction that meets your financial objectives, whether you want to exit or stay on and run the company.”
Chad Watt, a reporter for Mergermarket, believes the climate for sellers has improved greatly in the past year. “Private equity buyers are ready and shopping to spend; more significantly, lenders are lining up for good deals.” He adds that lending was one of the missing ingredients that kept deal flow down last year. But now, the mezzanine and equity lenders are finding themselves competing for deals, making for friendlier terms.
Conversely, there are not a lot of good companies competing for the investment capital, which can drive valuations higher. But this may change as more baby boomers retire and exit family-owned businesses.
Weak dollar draws overseas buyers
Mergermarket reports that several companies are courting non-U.S. suitors. “There’s considerable interest from foreign acquirers looking to break into the U.S. market,” said Mahmood. “We’ve done several cross-border transactions wherein the seller received a premium price due to the weak dollar and a well-run process that placed buyers in competition.”
One example is Arizona-based Pulice Construction, an Allegiance Capital client that sold in 2009 to a Spanish construction and services group for $113.9 million. Pulice’s EBITDA was $27.2 million. Bottom line: Those companies looking to dominate in the future are recapitalizing and buying up competitors. And for those who may be ready to exit, 2011–2012 presents a good window of opportunity for getting a good price before more sellers come to market. — Katherine Kirkpatrick, Vice President, Allegiance Capital, Dallas