2024 Construction and Manufacturing Private Equity [PE] Activity
Introduction: Resilient Investments in 2024
As 2024 draws to a close, the private equity (PE) market has shown both resilience and caution in navigating a challenging macroeconomic environment. While rising interest rates, inflationary pressures, and geopolitical uncertainties have slowed deal-making activity, the construction and manufacturing sectors continue to attract significant investment, driven by long-term growth drivers like infrastructure demand, technological innovation, and sustainability.
In this blog, we will not only explore the key trends reshaping these sectors but also dive deeper into the current valuation multiples being seen in recent deals within construction and manufacturing. This analysis will give a more nuanced understanding of the opportunities and challenges that business owners face as they navigate these industries in 2024.
Macroeconomic Context: The Environment for Deal-Making
2024 has been a year of strategic recalibration for PE firms, many of which have faced a combination of higher costs of capital and economic uncertainty. Rising interest rates, largely due to central bank policies to curb inflation, have tempered the rapid deal flow that characterized the boom years of 2021 and early 2022. As a result, PE firms have become more selective, focusing on sectors with strong cash flow potential, clear operational improvement opportunities, and exposure to long-term secular growth trends.
The latest data on deal volume reflects this cautious approach. According to PitchBook, U.S. PE deal volume dropped by around 15% in 2024 compared to 2023, with a notable slowdown in the number of mid-market transactions. Yet, sectors such as construction and manufacturing have remained attractive due to their inherent growth potential and the ability to deploy operational improvements that can unlock value.
PE in the Construction Sector
The construction industry continued to present unique investment opportunities in 2024, despite facing pressures like supply chain disruptions, skilled labor shortages, and rising material costs. However, the growing demand for infrastructure projects, coupled with the increasing push for sustainability and technological adoption, is creating substantial value for firms that are strategically positioned. This presents a unique opportunity for companies considering an exit or recapitalization options in 2025.
Valuation Trends in the Construction Sector
In the construction space, PE deals are typically valued based on earnings before interest, taxes, depreciation, and amortization (EBITDA). Given the fragmented nature of the industry, multiples can vary widely depending on the sub-sector, geographic focus, and growth profile of the target business.
Mature or Large-Scale General Contractors: For well-established players in the construction sector, especially those focused on infrastructure or public works projects, valuations in 2024 averaged around 7x–10x EBITDA. This reflects the relative stability of these businesses, backed by long-term government contracts or recurring revenue streams from large-scale, multi-year projects.
Construction Technology (ConTech) Firms: Companies in the growing construction technology space are seeing higher multiples, driven by their scalability and innovation potential. Recent transactions have placed ConTech valuations at 12x–18x EBITDA, with high growth prospects from automation, AI, and digital project management tools. For example, PE investors have shown keen interest in companies that offer software for building information modeling (BIM) or AI-powered construction management platforms.
Niche or Regional Construction Firms: Smaller, regional players in areas such as residential or specialized construction services (e.g., concrete, plumbing, electrical) are often valued at a lower multiple, typically in the 5x–7x EBITDA range. However, PE firms have found value in these businesses through operational efficiencies, consolidation strategies, or expanding geographic footprints. Expect this trend to continue into 2025.
PE in the Manufacturing Sector
The manufacturing sector is also undergoing significant transformation as investors focus on automation, reshoring, and sustainable production methods. Technological adoption, particularly in areas like Artificial Intelligence (AI), robotics, and data analytics, is driving operational efficiencies, while a global shift toward sustainability is prompting manufacturers to adopt greener practices.
Mid-Market Focus: PE deals in manufacturing leaned heavily on mid-sized transactions. Firms flexed strong balance sheets to fund strategic acquisitions, particularly in domestic markets. This trend was driven by supply chain risk management and geopolitical uncertainties.
Bolt-On Acquisitions: PE portfolio companies actively pursued bolt-on investments to expand their operational capacity and prepare for growth and potential exits. Stabilization in input costs, such as materials and labor, supported this activity.
Domestic Deals Lead Activity: Approximately 80% of manufacturing M&A deals in early 2024 were domestic, reflecting a strategic focus on mitigating global supply chain risks. PE firms preferred smaller bolt-on acquisitions that complement existing portfolios.
Cost Stabilization: With material and labor costs stabilizing, mid-market manufacturing companies became key targets. These firms were well-positioned to benefit from local supply chains and operational efficiencies, driving growth in the sector.
Portfolio Growth: Many PE firms used mid-sized acquisitions to expand their manufacturing portfolios, particularly in niche areas like advanced manufacturing and industrial automation, which remain resilient despite broader economic challenges.
The mid-market remains attractive for its scalability, opportunities for technological transformation, and alignment with sustainability goals. PE’s strategic focus on these areas has significantly shaped the trajectory of both industries in 2024.
These trends highlight the strategic and targeted approach of PE firms in navigating the evolving economic and regulatory landscape in both sectors. For those of you who are seeking more details on these and other deals, reports from GlobalData and PwC provide comprehensive analyses.
Valuation Trends in the Manufacturing Sector
The manufacturing sector sees a wider range of valuation multiples depending on the business type, growth potential, and operational efficiency. The key valuation drivers in this space are revenue growth, margin expansion (vis-à-vis wallet share), and the ability to scale operations through automation or strategic acquisitions.
Automotive Parts & Industrial Manufacturing: Traditional manufacturing companies, particularly those supplying parts for industries like automotive, aerospace, and heavy equipment, are currently being valued in the 6x–9x EBITDA range. The lower end of this multiple is typically for mature, lower-growth businesses, while higher multiples are achieved by companies that have invested heavily in automation and supply chain optimization.
Advanced Manufacturing [4.0]: Manufacturers adopting cutting-edge technologies such as robotics, AI, and IoT to improve productivity and reduce costs are seeing higher multiples. Recent deals in the automation and additive manufacturing spaces suggest multiples in the 10x–15x EBITDA range.
Sustainable and Green Manufacturing: With the growing emphasis on sustainability, manufacturers that produce green products (e.g., renewable energy equipment, electric vehicle components, recycled materials) are commanding strong multiples. Valuations for these types of companies range from 8x–12x EBITDA, depending on the scalability of their operations and the regulatory environment.
Challenges and Opportunities for PE in 2024
While both the construction and manufacturing sectors offer compelling opportunities, business owners must navigate several challenges:
Rising Labor and Material Costs: Both sectors are grappling with labor shortages and inflationary pressures on raw materials. This affects profit margins, particularly for construction companies with thin margins and manufacturers heavily reliant on commodity inputs.
Supply Chain Risks: Ongoing supply chain disruptions and the unpredictability of global trade continue to present risks, particularly for manufacturers. However, the trend toward reshoring and nearshoring may mitigate some of these concerns.
Capital Access and Interest Rates: The higher interest rate environment is making financing more expensive, which could limit the ability to fund large acquisitions or operational improvements through debt. This is pushing PE investors to pursue deals that can deliver organic growth or those that can leverage cost-cutting opportunities to improve margins.
Investment Strategy in 2024:
PE focus in 2024 centered on companies that could successfully adapt to the macroeconomic environment and technological disruptions. In construction, this meant investing in firms with government-backed infrastructure projects, those adopting cutting-edge technologies like AI and robotics, or green construction companies. In manufacturing, it meant focusing on businesses that embraced automation and sustainability, as well as those benefitting from reshoring or Industry 4.0 advancements.
Conclusion: A Promising, But Cautious Outlook
As 2024 comes to a close, the PE market in construction and manufacturing remains cautiously optimistic. Despite a slower deal environment, strategic opportunities in both sectors are abundant—especially in areas like infrastructure, automation, and sustainability. Owners who can adapt to the evolving trends and mitigate the challenges presented by rising costs and capital constraints will continue to find opportunities to unlock value.
With valuation multiples stabilizing and sectors like construction tech and advanced manufacturing commanding premium multiples, PE firms are poised to continue making strategic investments, setting the stage for a strong 2025. Business owners contemplating an exit should perform proper diligence in the planning phases from competent, reputable professionals.
If you need some help quantifying your business, contact us for assistance. Here’s to a healthy & prosperous 2025!