M&A activity in the Building Products Manufacturing (BPM) sector in recent years suggests a strong push to strengthen businesses via acquisition. Getting ahead of sustainability concerns, investing in next-generation technologies, and improving efficiencies in the distribution channel are just a few areas where acquisition has made sense to many companies. Even the larger BPMs have been acquiring middle-market firms to shore up areas of weakness and support their overall market strategy.
The Building Products sector continues to grow on the back of an economic expansion that just entered its 127th month – the longest expansion period in U.S. history; the outlook remains strong in the medium-term. The current projection for 2023 is for a total of $127.7 billion market size, with predicted CAGR of 0.8% between 2019 and 2023.
We should always pause to consider the possibility of decline, but several key demographic and economic growth indicators impacting the building products markets remain strong, including:
• The unemployment rate has been 4 percent or lower for the last 23 months. It has been in the 3.5 percent to 3.7 percent range since April 2019 and was 3.6 percent in January – rates last seen in 1969.
• Rising housing permits and starts on the back of ongoing low-interest rates and low unemployment
• Demographic shifts point to a growing need for housing as the number of households in their mid-30s to mid-40s will increase by 2.9 million over the decade. Typically, key times of homeownership.
One natural reaction to these trends and forecasts is to increase capacity in anticipation of growth. That might be fine if your competition simply did the same thing, and that a rising tide lifts all boats. But what if your competition is playing the better strategic game? There are other ways to enhance your market position.
M&A activity in the Building Products Manufacturing (BPM) sector in recent years suggests a strong push to strengthen businesses via acquisition. Getting ahead of sustainability concerns, investing in next-generation technologies, and improving efficiencies in the distribution channel are just a few areas where acquisition has made sense to many companies. Even the larger BPMs have been acquiring middle-market firms to shore up areas of weakness and support their overall market strategy.
Have you recognized these moves? What are you doing to counteract them? Product development is crucial to keeping up with the competition but cannot happen in isolation. Tracking competitor moves and anticipating their strategy must play a part. Are you making strategic acquisitions yourself – though with multiples riding as high as they are that can prove costly?
Regardless of your reaction to external trends, you need to ensure your own house is truly in order. A BPM client of ours recognized they fell behind in key areas of S&OP, product portfolio management, and manufacturing excellence. Their drive was to get the product out the door, and that allowed complacency (and cost) to creep into the system. We worked with them to take a fresh look at their systems, people, and processes in multiple parts of the business, and they are now far better prepared for market shifts.
We believe the market will continue to grow, delivering opportunities across the sector. But there will be winners and losers as competition tightens in the short term, and the market eventually sees a decline. The question is how you will ensure your business is on the right side of the equation – stay true to your strategy, ensure your house is in order, and don’t let the competition outflank you.
