Construction Services M&A Update – January 2025

An active Construction market helped accelerate Construction merger and acquisition (M&A) activity in 2024 as buyers increasingly turned to acquisitions as a way to bolster growth, expand market share, and capitalize on strong demand for construction services. Interest rate cuts in the latter half of 2024 combined with federal funding for infrastructure, energy, and manufacturing construction projects kept project backlogs elevated throughout 2024 and pushed total construction spending in the U.S. up 6.6% year-over-year (YOY) as of November 2024, according to the U.S. Census Bureau.¹ Sector growth and strong project backlogs, particularly within the aforementioned verticals, supported increased M&A activity in 2024 as sector players pursued inorganic growth opportunities by deploying ample cash reserves amid healthy revenue gains. However, a volatile and persistently stubborn inflationary environment stalled early and mid-year momentum within Commercial and Multi-Family Residential Construction verticals. In the near-term, sector growth will likely also face challenges stemming from rising materials costs due to potential tariff increases as well as worsening labor shortages from proposed immigration policy changes. Despite pressures, contractors’ six-month outlook for sales and margin growth has continued to accelerate, fueled by post-election optimism that favorable policy changes involving deregulation and tax cuts will support increased construction activity into 2025, according to a December article from Associated Builders and Contractors (ABC).² Furthermore, tailwinds propping up residential, energy, and manufacturing construction activity and project backlogs have continued to support long-term sector growth. Capstone anticipates federal funding and long-term tailwinds driving activity for construction services within high-demand verticals to continue supporting M&A momentum into 2025, particularly as project financing conditions continue to improve and revenue and profitability remains elevated across the sector.

Federal Funding and Long-Term Tailwinds Underpin Sector Growth and Encourage Sector M&A

Throughout 2024, sector growth was underpinned by nonresidential construction spending within Infrastructure, Manufacturing, Energy, and Datacenter markets, making construction service companies serving these verticals attractive M&A targets in 2024. A large portion of this verticalized sector growth has stemmed directly from federal funding from the Infrastructure Investment and Jobs Act (IIJA), Inflation Reduction Act (IRA), and the Creating Helpful Incentives to Produce Semiconductors (CHIPS) and Science Act amid bipartisan support for manufacturing onshore trends, renewable and energy efficiency investments, and infrastructure upgrades. Specifically, construction spending within the Manufacturing, Highway and Street, and Power verticals increased 21.5%, 6.1%, and 10.8% YOY, respectively, as of November according to the U.S. Census Bureau.

Long-term tailwinds related to increasing technology infrastructure requirements also helped support rising construction spending in 2024 amid growing demand for artificial intelligence (AI) and advanced computing. As of November, private nonresidential construction on datacenters surged, with spending up 55.2% YOY, according to the U.S. Census Bureau. As a result, construction services companies with synergistic operations, a strong customer portfolio, and scalable growth potential operating within these high-demand verticals have become attractive acquisition targets for sector buyers looking to leverage the long-term tailwinds driving sustained datacenter growth across the U.S. Of note, Parsons (NYSE:PSN),  a provider of technology solutions and services for Defense and Critical Infrastructure markets, acquired BCC Engineering in an all-cash transaction valued at $230 million (October 2024). Miami-based BCC provides engineering services for transportation, civil, and structural engineering projects and has been recognized as one of the fastest-growing transportation engineering firms in the Southeast U.S., according to a press release.³ The acquisition supports Parsons’ inorganic growth strategy prioritizing accretive companies, with more than 10% revenue growth, that provide either distinguished defense capabilities or increased geographic reach in high-growth Infrastructure markets. Specifically, Parsons’ cited BCC’s presence in the Southeastern U.S., which has seen the IIJA outlay $100 million in Federal Highway Administration funding between 2022 and 2026, as key acquisition rationale, according to the press release. Parsons expects BCC to generate roughly $110 million in revenues in fiscal year (FY) 2025, with the $230 million deal representing roughly 13.0x BCC’s estimated 2025 EBITDA, and will merge the company into its North America Infrastructure unit.

The Construction Services sector is propelling the M&A market forward. Buyers of all types are plentiful, and investment capital continues to flow towards the owners of these companies

Darin GoodHead of Building Products & Construction Services, Managing Director, Capstone Partners

Construction M&A Heats Up, Private Equity Activity Spikes Amid Easing Interest Rates and Strong Sector Growth

Construction M&A in 2024 accelerated for the second consecutive year, buoyed by the sector’s attractive long-term growth trends, strong government spending, and easing cost of capital conditions throughout the year. In 2024, the Construction Services sector captured 755 transactions announced or closed, a 24.2% YOY increase compared to 608 in the prior year. Strong sector growth throughout 2024 supported increased deal activity in the Construction Services sector as buyers turned to M&A to deploy elevated cash reserves amid healthy revenue gains and bolster growth by expanding market share and services offered. “We’re as busy now on the M&A front as we’ve ever been…you’ve got [targets], on the [Residential] side and some on the Commercial side, you’ve got folks [who] have had a pretty good run here…that are looking to exit. And then we’ve got some aging and ownership of folks that are ready to pass on the business and they don’t have anybody in place from a succession planning perspective,” noted TopBuild (NYSE:BLD) CEO, Robert Buck, at the September Jefferies Industrial Conference.⁴ Strong company-level margin performance and revenue gains amid sustained growth in construction spending across the U.S. also supported rising deal valuations across the sector in 2024. The average enterprise value from disclosed transactions increased 185.9% YOY to $271.1 million in 2024, up from $94.8 million in 2023. However, the YOY increase in average deal size was, in part, attributable to an acceleration in large-scale deals across the sector (up 250% YOY), while median deal value actually fell YOY from $37 million in 2023, to $29.3 million in 2024. Construction M&A deal conditions are expected to remain attractive for both buyers and sellers, underpinned by expectations for continued sector growth into 2025 that has been driven by post-election optimism and improved macroeconomic conditions.

Increased construction M&A activity in 2024 was heavily supported by rising interest from private equity firms amid easing cost of capital constraints and limited partner (LP) pressure to deploy elevated dry powder levels. Deal activity in 2024 increased across all buyer groups and was nearly evenly bifurcated between strategic buyers (57.6%) and financial buyers (42.4%), consistent with historical trends across the sector. Excluding a slight reprieve in 2022 as the Federal Reserve began raising interest rates, private equity deal volumes have risen each year since 2018, with 2024 deal activity up 25% YOY. This marks a stark contrast to the broader M&A market, which saw middle market (enterprise value less than $500 million) deal activity from financial buyers fall 7.7% YOY in the first three quarters of 2024, according to Capstone Partners’ Q3 2024 Capital Markets Update. Notably, platform deals in the Construction Services sector saw the largest increase across all buyer types with 77 deals, up 26.2% YOY from 61 in 2023. Rising platform activity reflected financial buyers’ heightened interest in the sector’s growth, service-oriented operating model, and highly fragmented market. The increase in platform formations bodes well for sustained Construction M&A growth from financial buyers as interest rates are expected to decline and newly established platforms seek to bolster their investments by pursuing tuck-in acquisitions into scalable businesses with accretive operational capabilities and geographic reach. Of note, Capstone advised Florida's largest provider of roofing services, Latite Roofing & Sheet Metal, on its sale to private equity firm Sun Capital (December, unannounced), according to a press release.⁵ The deal follows a popular trend among private equity firms investing in service providers, with Sun Capital citing Latite’s established market presence, scalability, and exposure to growing re-roofing demand as motivation for the deal. "We are thrilled to partner with Latite as a platform in the growing Florida Building Services market…This partnership is a natural extension of our approach to working with services businesses," noted Sun Capital Principal, Matthew Joblove, in the press release.

Financial Buyers and Skilled Labor Hurdles Propel M&A Targeting Sub-Contractor Businesses

The Sub-Contractor segment has been a particular area of M&A interest within the Construction Services space, as buyers aim to bolster growth and target scalable businesses with accretive operational capabilities in high-growth regions and verticals. In 2024, the Sub-Contractor segment captured 266 transactions, comprising the lion’s share (35.2%) of deal activity in the sector. The Sub-Contractor segment covers a variety of specialized and skilled construction services providers that are typically outsourced by a general contractor to perform a specific task within the broader project. The fragmented, highly scalable, and service-oriented operating model of sub-contractor businesses throughout the U.S. has supported growing M&A interest from private equity buyers looking to acquire or bolster platform investments in the space. In 2024, the Sub-Contractor segment accounted for the largest portion (43.8%) of private equity deals in the Construction Services space. Of note, these buyers showcased an interest in sub-contractors servicing Residential Construction markets as long-term tailwinds driving population migrations to southern regions and easing interest rates kept demand elevated amid a widespread shortage of single-family homes across the U.S. As a result, sub-contractors providing residential services such as HVAC, roofing, electrical, window/door installation, siding, and plumbing served as attractive acquisition targets in 2024.

Persistent industry-wide labor shortages for specialty trade contractors also helped spur M&A interest in sub-contractor businesses, particularly as established contractors get closer to retirement age and industry skill requirements continue to evolve. While an active Construction market throughout 2024 has supported a 2.6% YOY gain in industry employment as of November 2024, the number of job openings have consistently outpaced the volume of available workers, according to ABC.⁶ In addition, new technology tools and increasingly complex project requirements have added more pressure to the Construction Labor market as skill requirements for workers rise. These rising skill requirements have exacerbated sector labor strains stemming from an aging workforce, waning career interest from younger generations, and recruitment competition from other skilled trade sectors. Of note, AI solutions provider and business incubator, PeachWiz, acquired sub-contractor, AIS Security, in September 2024 for an undisclosed sum. AIS Security provides low-voltage installation and maintenance sub-contracting services for smart lighting, security camera, wind/solar solutions, building access controls, and automation systems. The acquisition enables PeachWiz with comprehensive turnkey services for its portfolio of Power-Over-Ethernet (POE) and low-voltage technology solutions. By integrating AIS Security’s network of skilled technicians, PeachWiz expects the vertical acquisition to accelerate growth, reduce time-to-market for new installations, and expand market share as it aims to meet rising demand for low-voltage POE solutions in the Education, Smart City, Healthcare, and Commercial Real Estate sectors. Capstone anticipates that sub-contractor businesses will continue to draw M&A appetite within the Construction Services sector, driven by rising private equity interest and heightened demand for specialty trade contractors. Additional Construction Services transactions are detailed below.

• Synergos Acquires ODC Construction (September 2024, $250 million) – Japanese Asahi Kasei (TSE:3407)-owned Synergos, a conglomerate of residential sub-contractors, acquired ODC Construction in September 2024 for an enterprise value of $250 million. Florida-based sub-contractor ODC Construction provides residential shell construction, foundation, first-floor block masonry, and lumber framing services. The acquisition brings together two sub-contractors that have focused on revolutionizing the Residential Construction market by enhancing operational efficiencies, shortening project timelines, and alleviating labor shortage issues through technology-enabled services and operations. Specifically, ODC introduced a proprietary enterprise resource management (ERM) system that has improved efficiency in the construction supply chain for its clients, according to Builder Online.⁷ Synergos has improved upon industry-standard operational efficiencies by leveraging its parent company and chemicals’ manufacturer Asahi Kasei’s lean-production methodologies and data-driven solutions. Of note, digital twin technology and horizontally integrated sub-contractor operating models have reduced Synergos’ project timelines from 80 days to 32 in certain markets, easing labor sourcing challenges, according to Builder’s Daily Technology.⁸

Synergos also pursued the acquisition as part of Asahi Kasei’s broader strategy of expanding its operations into the high-growth residential construction regions in the Southeastern U.S. The transaction represents a trend among Japanese residential construction companies accelerating investments in the U.S. market in an effort to diversify operations and create more defensible revenue streams amid stagnating demand for homebuilding in Japan.

• Quanta Services Acquires Cupertino Electric (July 2024, $1.7 Billion, 0.8x EV/Revenue, 10.6x EV/EBITDA) – In July, Quanta Services (NYSE:PWR), a contractor services provider for the Utility, Renewable Energy, Communications, Pipeline, and Energy industries, acquired Cupertino Electric (CEI) for an enterprise value of $1.7 billion, or 0.8x EV/Revenue and 10.6x EV/EBITDA. CEI provides electrical infrastructure solutions to the Technology, Data Center, Renewable Energy, Infrastructure, and Commercial sectors and was recognized as the sixth largest electrical contractor in the U.S. in 2023, with Quanta as the largest, according to EC&M Magazine.⁹ The acquisition has created a combined entity with a highly synergistic portfolio of operations including a comprehensive end-to-end electrical infrastructure solution; a scalable, highly technical low-voltage electrical workforce; a more diverse customer base expanding access to strategic high-growth verticals; and an enhanced renewable energy solutions platform. Of note, Quanta cited CEI’s leadership in serving the high-growth Technology and Data Center verticals, touting more than 20 million square feet of critical electrical system installations at data centers, as key rationale for the acquisition, according to a press release.¹⁰ Quanta expects CEI to close the year with between $2.1-$2.2 billion in revenue and $155-$175 million adjusted EBITDA, and end 2025 with between $2.3-$2.4 billion in revenue and $175-$195 adjusted EBITDA.

The outlook for 2025 Construction M&A has remained strong, buoyed by sizeable sector growth and buyers’ persistent inorganic growth pursuits. Heightened federal funding is also expected to provide sector participants with ample revenue and acquisition opportunities throughout the year. In addition, a more favorable interest rate environment will likely accelerate private equity’s fervent interest in the space and catalyze a healthy Construction M&A market.

To discuss Construction Services sector growth trends, provide an update on your business, or learn about Capstone's wide range of advisory services and Construction M&A knowledge, please contact us.

Izzy Jack, Associate, was the lead Market Intelligence contributor to this article. 

Endnotes

1. U.S. Census Bureau, “Monthly Construction Spending, November 2024,” https://www.census.gov/construction/c30/pdf/release.pdf, accessed January 7, 2025.

2. Associated Builders and Contractors, “ABC’s Construction Backlog Indicator Holds Steady in November, Contractor Confidence Surges,” https://www.abc.org/News-Media/News-Releases/abcs-construction-backlog-indicator-holds-steady-in-november-contractor-confidence-surges, accessed January 7, 2025.

3. Parsons, “Parsons to Acquire BCC Engineering,” https://www.parsons.com/2024/10/parsons-to-acquire-bcc-engineering/, accessed January 7, 2025.

4. TopBuild, “Jefferies Industrials Conference,” https://wsw.com/webcast/jeff303/register.aspx?conf=jeff303&page=bld&url=https://wsw.com/webcast/jeff303/bld/1667250, accessed January 7, 2025.

5. Sun Capital Partners, “Sun Capital Partners Affiliate Completes Investment in Latite Roofing & Sheet Metal,” https://suncappart.com/2025/01/08/sun-capital-partners-affiliate-completes-investment-in-latite-roofing-sheet-metal/, accessed January 13, 2025.

6. Associated Builders and Contractors, “ABC: Construction Adds Just 10,000 Jobs in November, Industry Employment Growth Still Outpaces Economy,” https://www.abc.org/News-Media/News-Releases/abc-construction-adds-just-10000-jobs-in-november-industry-employment-growth-still-outpaces-economy, accessed January 7, 2025.

7. Builder Online, “Synergos Companies Acquires Florida-Based ODC Construction,” https://www.builderonline.com/money/m-a/synergos-companies-acquires-florida-based-odc-construction_o, accessed January 7, 2025.

8. Builder’s Daily Technology, “Little Big Deal: What Synergos’ Purchase of Florida-based ODC Means,” https://www.thebuildersdaily.com/little-big-deal-what-synergos-purchase-of-florida-based-odc-means/, accessed January 7, 2025.

9. EC&M, “2023 Top 50 Electrical Contractors Rankings,” https://www.ecmweb.com/top-50-electrical-contractors/document/21274264/2023-top-50-electrical-contractors-rankings, accessed January 7, 2025.

10. Quanta Services, “Quanta Services Acquires Cupertino Electric, Inc., a Premier Electrical Infrastructure Solutions Provider to the Technology and Renewable Energy Industries,” https://investors.quantaservices.com/news-events/press-releases/detail/360/quanta-services-acquires-cupertino-electric-inc-a-premier-electrical-infrastructure-solutions-provider-to-the-technology-and-renewable-energy-industries, accessed January 7, 2025.