Q1 2019 Industrial Quarterly Newsletter

TKO Miller Market Analysis 

• While tariffs, strained supply chains, and a tight labor supply continue to plague the industrial and construction services sector, production output and performance continue to rise to meet the demands of continued expansion of the economy.
• TKO Miller’s proprietary Industrial and Construction Services Index (see below) rebounded considerably in Q1 (7.5X to 8.7X TEV/EBITDA) following a sharp decline in Q4 2018, however valuations are still well-below recent levels. 
• Optimism surrounding the industry’s short term outlook is partially attributable to broad macroeconomic factors, including the Federal Reserve signaling no rate hikes in 2019, a steady outlook for GDP growth, and rejuvenated public market strength. Persisting risk factors include supply chain issues and political uncertainty.
• TKO Miller maintains that a downturn is still possible in the short term, but has not seen the imbalances within the economy that precede a recession.
• Recent activity with industrial and construction services CEOs and business owners indicate strong bidding activity and an optimistic outlook for 2019.

Industrial and Construction Services News

The Benefits of Selling Used Equipment 

Increasingly, rental customers expect newer machines and equipment from rental operators. Every rental operator must have a well-thought-out plan for keeping their fleet up-to-date. A lower average fleet age translates into a competitive advantage. Monitoring the fleet age suggests a strategy for roll-out and replacement. Make sure you are asking yourself the right questions when deciding to sell or not to sell. [LINK]

Construction Employment Increases Despite Early 2019 Slowdown

Thirty-seven states added construction jobs between February 2018 and February 2019, although construction employment increased in only 16 states between January and February, according to an analysis by the Associated General Contractors of America. Association officials said the slowdown may reflect the impact of widespread severe weather on construction, as well as a growing shortage of qualified workers, and they urged federal officials to allow contractors to hire year-round construction guest workers. [LINK]

US-China Trade Tensions Continue to Cloud US Construction Industry Outlook 

 Higher costs of imported building materials could result in slower growth and job creation in the construction industry and affect infrastructure spending. The immediate impacts of the tariffs that were imposed by the U.S. government last year on a wide range of Chinese products along with the tariffs on steel, aluminum, and Canadian lumber are already being felt by the industry. [LINK]

Industrial and Construction Services Valuation Index 

Middle Market Valuation Multiples 

By Timothy Oleszczuk on Mar 31, 2019 8:10:00 AM