Brian Andreosky, President of Aldrich Capital Advisors, is joined by Matthew Drake and Scott Duncan, Co-founders and Partners at BaseRock Partners, an investment bank serving the engineering and construction industry, for a discussion on M&A trends in the construction space.
Brian Andreosky (BA): There are high expectations that 2025 will be a strong year for mergers and acquisitions (M&A). Tell us about your outlook for M&A activity for the year, especially as it relates to options for owners of construction companies.
Scott Duncan (SD): We continue to see activity in the M&A market. Since interest rates increased in 2022, the residential and commercial side has weakened, but strategic buyers continue to look for growth and diversification in various pockets of the market. We’ve had a very good run of growth in several areas of the non-residential construction sector, with substantial transaction activity in manufacturing and AI or tech-driven markets. Combine that with private equity having large quantities of cash to deploy and focusing on roll-up strategies across the landscape, and we see a strong year ahead.
Provided the economy remains strong and we still have funding across the spectrum in the non-residential markets, which is generally not as interest rate-sensitive as the residential side, we expect the construction M&A market to remain vibrant.
Matthew Drake (MD): We’re also seeing significant private equity activity in certain high-growth sectors, including energy, utilities, MEP (mechanical, electrical, and plumbing), and data centers. For example, three or four years ago, private equity-driven M&A activity for roofing contractors was rare, but now we’re seeing new deals almost monthly. We’re seeing many new trends in our industry and we’re bullish in 2025. If we have an extension of the 2017 tax cuts coupled with increased deregulation, private equity and other buyers will likely have the confidence to make longer term investments, further strengthening the M&A market.
BA: Given some of the factors within the construction industry that may affect the salability of a company, if an owner is starting to plan for an eventual transition, what should they be thinking about now to impact their valuation when they’re ready to sell?
MD: In our industry, salability is highly variable. The first consideration is supply and demand. Sectors such as general builders, general contractors, and heavy civil have fewer buyers, leading many firms to explore employee stock ownership plans (ESOPs) or other internal buyout structures. On the other hand, specialty contractors tend to attract more interest from buyers, making them more salable. The attractiveness of a company’s end markets significantly impacts its valuation and salability.
SD: When we think about salability and value for contractors or the construction market generally, we tend to have five lenses that we look through. First is market conditions: what are stock valuations doing overall; are multiples high or interest rates low; is there growth in the market generally? Second is market position and competitive advantage: do we have high barriers or low barriers to entry in this market? That will affect valuation and tend to reflect itself in pricing and margin. Third is performance and operational consistency. Can you bid a project at 10%, then close it at 12%, or are you bidding projects at 10% and having them come in at 5%? How consistent are you at bidding work and executing based on your plan?
The fourth and probably most important lens is the management team. There are so many businesses in which the management team is one or two people looking to retire in the next five years. A buyer comes in and says, “Well, who’s going to run this thing?” The seller may think it’s the buyer’s problem, but in reality, it’s the seller’s problem. To be salable, a company must have a good team that is committed to remaining at the business. The fifth area we evaluate is general transaction risk. That includes a wide variety of business attributes, such as environmental, real estate, union pension liabilities, lease conditions and terms, off-balance sheet liabilities, safety—all those things can affect salability and value and must be evaluated on a case-by-case basis.
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About Brian Andreosky
Brian Andreosky is President of Aldrich Capital Advisors, and is dedicated to helping business owners transition their companies. In this role, he provides exit planning services to help business owners find the right solution to transition and maximize the value of their business. Brian is a member of the Exit Planning Institute (EPI). Prior to joining Aldrich, he held roles in investment management, management consulting, and private equity.
About Matthew drake
Matthew Drake is co-founder and partner at BaseRock Partners. He has nearly two decades of corporate finance advisory experience, as well as experience in advising middle-market companies in mergers & acquisitions and other internal ownership transitions. Matthew is an industry leader in the structuring and execution of ESOP buyouts.
About Scott Duncan
Scott Duncan is co-founder and partner at BaseRock Partners. He brings more than 20 years of financial advisory experience to the firm, including 15 focused exclusively on construction and construction materials M&A transactions. Scott’s transaction experience spans all types of construction industry clients, including general building contractors, heavy civil contractors, and a wide variety of specialty contractors.
About Aldrich Capital
Aldrich Capital Advisors LP provides advisory services for business transactions, including succession planning, acquisitions, or mergers. We help business owners navigate challenges and unlock growth opportunities with actionable insights. Our innovative team is dedicated to your success.
