Prepare for a Successful Year in Construction M&A

The construction industry in the UK is buzzing with excitement as merger and acquisition (M&A) activity among contractors in specialized industrial, infrastructure, and technical services markets reaches unprecedented levels. This trend isn’t slowing down anytime soon, with expectations that it will continue well into 2025 and beyond. The reason for this surge? The industry is grappling with a surge in demand for specialized services amid a shortage of skilled labor to meet it.

In 2024, there were several significant transactions that made their mark on the sector. This included the sale of JSM Group to TowerBrook Capital Partners, CVC’s acquisition of M Group Services, the sale of BGEN to M Group Services, Global Infrastructure Partners’ investment in Lanes Group, and the sale of FM Conway to Vinci Construction.

The assets proving most attractive to investors are contractors offering specialized services in regulated and private power/renewables markets. This heightened interest is largely driven by the urgent need to upgrade aging UK infrastructure and the ongoing energy transition agenda. Spending by electricity distribution network operators in the current price control cycle (2023-2028) is up 15% from the previous period. Investment in renewable energy sources like solar PV, battery storage systems, and wind energy is also expected to rise significantly in the coming years.

Moreover, contractors that provide mechanical and electrical (M&E) services in industrial and infrastructure markets are gaining traction. The need for more sustainable solutions, increased automation, and digitization are contributing to a surge in demand for their services. This not only presents revenue and margin opportunities but also gives contractors a chance to negotiate contracts with less risk.

Key legislative changes, like those to capital gains tax and inheritance tax, are expected to have a positive impact on M&A activity. They may encourage business owners to seek deals to avoid potential future rate increases or reconsider the appeal of maintaining family ownership of businesses.

Buyer and investor dynamics in this sector are robust, with large strategic buyers, growing private equity-backed vehicles, and private equity funds actively seeking UK-based acquisitions. If you’re a construction business owner contemplating a sale or external investment, it’s crucial to engage advisors early. Maximizing value and deal terms requires careful preparation and positioning to ensure a successful transaction.