TKO Miller Market Analysis
- Despite the persisting uncertainty surrounding industrial and construction markets, TKO Miller expects seller-favorable market conditions to hold throughout 2019 as buyers continue to take advantage of the favorable lending environment and aggressively pursue acquisitions.
- TKO Miller’s proprietary Industrial and Construction Services Index (see below) has continued to trend upwards after experiencing a sharp decline in Q4 2018.
- While the valuation outlook for industrial companies remains strong in the near term, valuations for businesses with strong ties to construction cycles may be at or slightly past peak levels, as buyers begin to feel concern that the construction cycle may have reached its peak and that an inevitable slowdown in the building market is on the horizon.
- In late Q2, the Trump administration elected to table the proposed addition of roughly $300 billion in new tariffs on Chinese imports. Notwithstanding renewed negotiations, the trade war between the U.S. and China continues to create intensified downside risks to the growth of the industrial and construction services market, despite projected growth of 2.5% to 3% for the global economy.
- Industrial net absorption, or physically occupied industrial space, finished at 39.2 million square feet in Q1 2019, the lowest quarterly total since Q3 2012. The drop in absorption highlights the industrial market’s reliance on new construction for positive net absorption. With 294 million square feet under construction for the U.S. industrial market, it is anticipated that net absorption will see an increase in the coming quarters (Colliers).
Industrial and Construction Services News
Construction Spending Diverges in April as Public Sector Investment Surges, Private Non-Residential Projects Slip, and Single-Family Stalls
Public construction spending soared 4.8 percent for the month and 11.8 percent year-to-date. Private nonresidential spending declined 2.9 by percent from March to April, while private residential construction spending slipped 0.6 percent for the month and 7.6 percent year-to-date. Association officials warned that tariffs and countermeasures by U.S. trading partners are adding costs and uncertainty to construction projects and are potentially reducing demand for numerous types of projects. [LINK]
The RER 100 totaled $25.2 Billion in a Record Year for the Listing
The new Rental Equipment Register (RER) 100 totaled $25.2 billion, a record total for the listing and a 15 percent increase over 2018’s $21.9 billon. The RER 100, ranked in order of rental volume, reported strong business in oil and gas, non-residential construction, and residential, commercial, and specialty construction. The RER 100 was led by United Rentals (NYSE: URI), which reported $6.9 billion in rental revenue, along with $8.0 billion in total revenue. Sunbelt Rentals (LSE: AHT) was next with $4.6 billion in rental revenue and Herc Rentals (NYSE: HRI) followed with $1.7 billion. [LINK]
New ANSI Requirements to Affect Owners, Operators, and Supervisors of Aerial Lifts
New standards have been designed to enhance safety and shift North American equipment standards closer to international standards, allowing companies and equipment manufacturers to be more competitive in the global marketplace. These new standards place greater accountability on the equipment user/owner regardless of whether they are a large maintenance operation or a small business that rents a scissor lift, boom lift, etc. for seasonal work. Owners, operators, and supervisors must be in compliance by December 2019. [LINK]
Industrial and Construction Services Valuation Index
Middle Market Valuation Multiples
Industrial and Construction Services Transactions
June 2019 – Trench Plate Rental Co. Completes Acquisition of Trench Shoring Services
Trench Plate Rental Co. (TPRC) has acquired the assets and operations of Trench Shoring Services (TSS), a multi-state provider of trench safety equipment rentals and sales with 13 brand locations across the United States. Headquartered in Downey, California, TPRC has grown into one of the country’s largest providers of trench safety solutions. Combined with TSS, TPRC now serves more than 9,000 customers through its network of 34 branch locations in the United States.
June 2019 – Park-Ohio Holdings Corp. Completes Acquisition of EFCO, Inc.
EFCO, Inc., doing business as Erie Press Systems, designs and manufactures hydraulic and mechanical presses for customers in the United States and internationally. It offers closed die forging, SPF/DB hot forming, compaction, composite molding, and carbon extrusion presses. The Company serves the aerospace, automotive, and passenger rail industries. The Company was founded in 1895 and is based in Erie, Pennsylvania. As of June, EFCO, Inc. operates as a subsidiary of Park-Ohio Holdings Corp.
June 2019 – FirstService Corporation Completes Acquisition of Global Restoration
Global Restoration Holdings, LLC is the second largest commercial and large loss restoration firm in North America. Based in Denver, Colorado, the Company’s services include restoration and reconstruction on behalf of blue chip, national clients, which include multi-location commercial customers, property owners, and insurance companies.
May 2019 – Climate Pros, a Portfolio Company of Saw Mill Capital, Completes Acquisition of Norfoxx Refrigeration, Inc.
Norfoxx Refrigeration, Inc. provides commercial refrigeration and air-conditioning services. The company was founded in 2005 and is based in Round Rock, Texas. Climate Pros, Inc. provides refrigeration and HVAC repair, maintenance, and construction services to grocery retailers and other cold-chain customers in North America.