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The Dutch maintenance sector: A hotspot for Mergers and Acquisitions

Private equity firms are increasingly acquiring Dutch maintenance contractors due to their stable growth potential. Merged contractors can meet the needs of large clients, like housing associations, with added value.

Construction on skyscraper in downtown core

Developments of mergers and acquisitions in the Dutch construction sector

There has been a significant rise in mergers and acquisitions in Dutch construction in the last 15 years. In 2022, there were 675 mergers and acquisitions in the construction sector, which is three times higher than in 2007. Within the construction supply chain, the building material industry has the highest rate of mergers, averaging 0.7% annually compared to 0.3% for construction companies. This is because it's easier to achieve economies of scale in the production of building materials. The number of mergers and acquisitions has mainly occurred among specialised construction companies, such as installers and maintenance firms. The number of M&A has also increased among companies with fewer than 50 employees, while mergers and acquisitions among larger companies have increased at a lower level.

What are the opportunities and risks invovled?

In the construction industry, older entrepreneurs sometimes sell their companies for retirement, which can stimulate more mergers and acquisitions. Although, a large wave of sales due to aging and business succession is unlikely in the coming years. Construction companies can buy other companies to secure critical resources such as building land or staff.

Acquisitions by private equity parties can bring additional financial discipline, which can reduce risks, improve financial performance, and better safeguard continuity. However, there are also risks involved, such as cultural clashes, time-consuming and complex processes, and losing clients due to changes in service or working method.

The profit margins of construction companies are relatively low, especially in the infrastructure sector, and are dependent on economic developments. Acquisitions occur more often in the specialised construction sector, where profits are higher. Due to the limited industrialisation in construction, scale advantages are limited for many contractors. Nevertheless, some investors still buy large construction companies, especially in the maintenance market, to save monitoring costs. An acquisition by a capital-rich private equity party can provide an investment impulse in the construction company, leading to further investments in efficiency, digitalisation, industrialisation, and sustainability, which can lower costs and increase profitability.

How the latest trends influence the market

One of the recent trends in the construction industry is the growing maintenance market. The share of the renovation and maintenance market in the construction industry has steadily increased over the years. This increase is expected to continue, especially with the need for energy-efficient measures. This trend makes the construction sector more attractive to investors since the maintenance market provides a stable and predictable cash flow.

However, the maintenance market is very fragmented, and there are few economies of scale to be achieved, which makes mergers and acquisitions less efficient. But, large customers such as housing corporations are increasingly looking for larger solvent parties with whom they can enter into long-term maintenance and sustainability contracts. Private equity can link different maintenance companies together by buy-and-build to create economies of scale.

Another trend in the construction industry is digitalisation. Further digitalisation can make it easier for construction companies to exchange data with each other, which increases transparency. Digital marketplaces make it easy for construction companies, subcontractors and suppliers to find each other and exchange data quickly. However, investments in digitalisation are often difficult to value during an acquisition. Self-developed software is often very company specific, which makes it difficult to sell. On the other hand, digitalised contractors can be interesting acquisitions because they are frontrunners in the industry.

Industrialisation is another trend in the construction industry that affects mergers and acquisitions. Industrialisation can speed up the construction process, especially for new construction, at lower construction costs and with less staff. However, with industrialisation, construction companies become more dependent on specific suppliers for specific products, which limits their flexibility. To ensure supply security, construction companies start producing these building materials themselves or take over a supplier. This trend can result in scale enlargement, putting smaller construction companies under pressure.

In conclusion, the construction industry is ever-changing, and trends in the industry have a significant impact on mergers and acquisitions. The growing maintenance market, digitalisation, and industrialisation are three trends that will continue to shape the construction industry and affect mergers and acquisitions in the future.

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