SAZUN BLOG
Mai 28, 2021

Industry Insight Construction Material

 

“Welcome to our Construction Materials Insight, giving you a birds-eye market view from an M&A perspective. After the start of the covid crisis, the industry faced an unexpected strong demand, resulting in high growth rates, which, itself, further fueled the ongoing trend of consolidation. We can observe vivid M&A dynamics in the market and expect good opportunities for acquisitions in the months to come.“

 

Wolfgang Regele,
Managing Partner

 

Market Insights
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Market Overview

Global Construction Material Market Development
in USD b 2021-2025

 

Global Development per Segment
in USD b 2021-2025

 

 

  • Demand for construction materials has significantly increased since the pandemic-related shutdowns in 2020. This trend is expected to continue because of greater governmental investments in infrastructure.
  • In terms of material, we, therefore, see growth among the three primary sectors, namely Bricks, Cement, and Aggregates. Analysts argue that among these segments, Cement is expected to grow the most because of recent investments in innovations reducing its carbon footprint. This push towards CO2 reduction is primarily witnessed in the EU.

Sources: MarketLine (2019) Technavio 2021, Globalnewswire (2020), PrNewswire (2021), Roland Berger (2020), McKinsey (2020)

Market Details 

Global Cement Production 2019
in m tonnes

Covid-19 impact on the Global Cement Production

 

  • The chart above shows the Cement production levels in 2019. China was a clear market leader with 63% of global production. Looking at the low impact of the COVID-19 Pandemic on China’s production levels, the country’s growth is projected to continue. With regards to other countries, the pandemic’s impact is unevenly distributed.
  • This fuels further M&A and Joint Venture (JV) activity in the months to come because of the large difference between “winners” and “losers” after the crisis. An example of recent JV activity includes the partnership between Cemex and BP aiming to produce net-zero CO2 concrete by 2050.
  • Moreover, with post-crisis increasing demand for raw materials, further price hikes in the industry can be expected.

 

Note: Stable 0-2%, Moderate Impact 3-6%, Strong Impact +7%
Sources: IFC (2020), global cement (2021), Bloomberg (2021), livemint (2021)

Observed Trends

The “Work From Home” trend is expected to grow, which may disrupt the overall commercial real estate and construction market. Therefore, adaptations in projects towards residential construction may be expected.

High demand in raw materials is causing prices to rise above the norm with increases in costs of >6% Y-o-Y in the month of April. Looking at the producer price index, prices in emerging markets are expected to reach an all-time high in the months to come. This is further fueled by trade policies from the U.S. where it is reported that especially aggregates will rise significantly in prices.

Analysts assess that further consolidation and internationalization in the market for construction materials, will trigger larger investments into R&D and equipment which will positively impact sustainability.

Digitalization in the construction industry is on the forefront because of quickly evolving client expectations. Additionally, prices in hardware and software have dropped, allowing for wider implementation in the construction industry.

Sources: Financial Times (2019), Cato (2021), McKinsey (2020), PrNewswire (2021), Oliver Wyman (2018)

Valuation Trends and Developments

EV/SALES(Next 12 Months)


EV/EBITDA(Next 12 Months)

  • The peer group consisted of stock-listed multinationals in the construction material sector. For Small and Mid sized businesses 20-30% markdowns in multiples may be expected.
  • EV/Sales fluctuated strongly in 2020 because of the impact of the COVID-19 pandemic on the European construction material industry. For the Next 12 months, Multiples are expected to reside above the 2-year Median, because of the ongoing boom in the construction industry.
  • EV/EBITDA displays a similar pattern, nevertheless, an improvement of the multiple can be witnessed in Q3 2020, linking to companies’ optimization of operating margin. However, increases in commodity costs for aggregates could further decrease the industry’s EBITDA margin in the upcoming months.

Sources: Sazun Equity Research, Construction Materials (2021)


Key Performance Indicators

Selected Latest Deals (YTD)

Want to know more?
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If you would like to learn more about the valuations and deals of your industry, the transaction mentioned above or generally our way of working, we would certainly be happy to demonstrate our m&a PLUS® principle in a confidential meeting.
Just get in touch and we will share our experience on how to grow businesses with long-lasting partnerships.

With passion for M&A,
Your SAZUN Team