Industrial and Construction Services Newsletter - Q4 2020

TKO Miller Market Analysis 

• As 2021 gets underway, operators and investors alike are looking for the new year to provide a sense of renewed optimism for global economies.
• Record federal spending bills providing monetary and work-related assistance in response to coronavirus hardship have given infrastructure proponents momentum at the end of 2020 in large part because historically, federally sponsored infrastructure projects have often been one of the best means of boosting an economy due to its dual-ability to provide both jobs and capital directly to main street.
• While bipartisan efforts to get a trillion-dollar infrastructure spending bill across the finish line failed during the Trump administration, the Democratic sweep this election cycle is likely a positive indication that President-elect Joe Biden’s infrastructure plan to build a modern, sustainable infrastructure in the United States could come to fruition as early as the end of 2021.
• Backlogs remain a crucial factor in determining overall performance in the construction and industrial services sectors in 2021, and the market is still faced with fewer bidding opportunities and fierce competition as a result of recessionary pressures, with some contractors indicating substantial reduction of their current backlogs at year-end.
• Human capital in these segments quickly regained traction after mass unemployment in the early stages of the pandemic, with roughly 60.0% of jobs being recovered across construction and manufacturing as of September.
• M&A activity increased at the end of 2020, and valuation multiples within the industrial and construction services sectors continued to edge upward in the most recent quarter after a large decline in 2Q20 as the industry pressed pause on virtually all new project activity to assess market factors.
• These M&A trends should continue as slowed organic growth pressures companies to seek value through accretive transactions to increase shareholder value.
• The negative economic ripples from 2Q20 and 3Q20 have begun to dampen as the picture for 2021 becomes clearer, with a Democratic sweep improving the possibility of an infrastructure spending bill, COVID-19 vaccines increasing economic confidence, and employees heading back to work.
• That said, the impact of the coronavirus pandemic on broader, longer-term construction demand drivers (office capacity, reduced business travel and lodging needs, shift from urban to suburban housing, etc.) is yet to be fully seen. While the outlook for construction activity in 2021 seems to be improving, many sources are still expecting an overall reduction in construction spending compared to 2020 (down roughly 4.0-5.0%) as pre-COVID backlogs diminish and new project starts lag.

Industrial and Construction Services Transactions

Jan 2021 – Herc Holdings Acquires Houston-based Champion Rentals

Herc Holdings, Inc. (operating as Herc Rentals), an equipment rental supplier based in Bonita Springs, FL, has acquired substantially all the assets of Houston-based Champion Rentals, a full-service general equipment rental company with four locations in the Houston area. The transaction represents Herc Rentals’ first multi-location acquisition since it became an independent, publicly-traded company in 2016.

By Timothy Oleszczuk on Jan 11, 2021 2:58:05 PM