Business valuations rise in ‘resilient’ Building Products & Services sector

  • Business valuations increase in the Building Products & Services sector, with trade multiples rising from an average of 6.7x EV/EBITDA in 2020 to 7.7x EV/EBITDA in 2021
  • Across the 11 sub-sectors, valuations rose or held firm in eight. The steepest rise was in the Kitchen & Bathroom sub-sector
  • M&A transactions in the UK Building Products & Services sector were up by 51% on 2020 levels – an all-time high.

Companies in the Building Products & Services sector are worth more now than pre-pandemic, as deal activity reached an all-time high in 2021 following a record year of transactions.

According to BDO’s annual Building Products & Services report, in association with the Construction Products Association (CPA), business valuations increased last year, with trade multiples rising from an average of 6.7x EV/EBITDA in 2020 to 7.7x EV/EBITDA in 2021. Across the 11 sub-sectors, valuations rose or held firm in eight. The steepest rise was in the kitchen & bathroom sub-sector. Other significant increases were in two of the busiest sub-sectors: merchants and HVAC & plumbing.

The stock market has also taken note of the resilient Building Products & Services sector, driving up valuations of listed business in the sector. Average listed company multiples increased to 12.8x EV/EBITDA in April 2022, up from 12.1x last year.

John Stephan, partner and Head of Global M&A at BDO LLP, commented: “The overall upward trend in valuations is a result of increasing competition, as acquisitive private equity firms have the means to secure the targets they deem most attractive. The average multiple paid by private equity is 7.9x compared to an average of 7.5x paid by trade acquirers.

“Competition for quality companies will continue to be intense following the recent spike in M&A across Building Products & Services. Buyers will need to be aware of the competitive nature of the market and court prospects not only on price, but also on intangibles assets such as cultural fit and synergies for growth.”

The Building Products & Services report also showed a 51% rise in UK M&A transactions, with 375 deals in 2021. There were more private equity-backed transactions in 2021 than there were overall sector deals in 2014, less than a decade ago. Private equity activity last year exceeded that of the two previous years together.

Alan Chan, M&A Director at BDO, commented: “Private equity investors have been showing increasing interest in Building Products & Services in recent years. But last year the stream of private equity-backed deals turned into a flood, increasing 92% from 79 transactions in 2020 to 152 in 2021. It’s clearly at home in Building Products & Services, seeing plenty of opportunities for value creation and continuing scope for portfolio building.”

The report highlighted that companies in the Building Products & Services industry are reporting an acceleration of sustainability awareness in recent months, with many businesses making sustainable commitments a core part of missions and visions.

Chan added: “Company valuations are at their highest in years. However, what is particularly valued are companies that focus on sustainability, which is fast moving from a nice-to-have add-on to a basic business requirement.

“The momentum behind ESG investing appears unstoppable and will only increase the importance of sustainability in considerations around M&A. We are already seeing growing interest around companies that have sound green credentials and we expect such businesses will increasingly be able to command a premium.”

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