Mid-size UK construction firms are still exploring mergers and acquisitions (M&A) as a viable near-term strategy to achieve growth and resilience, while diversifying their market share amid a challenging backdrop.
But what is the right approach here and what success have others had in the past? Let’s see what the industry is saying…
Out of 500 UK construction businesses with revenue of up to £150 million, 19 per cent said M&A was among their ‘top growth strategies’ for the next three years, a new study has found.
In an “increasingly competitive landscape”, more than 20 per cent said their main drive in pursuing an M&A deal would be to break into new geographic markets, while 19 per cent sought to acquire new talent and capabilities.
It supports data showing the UK construction sector will require more than 250,000 additional workers by 2028 to meet projected demand, which roughly translates to an average of 83,600 extra workers joining the industry each year.
Though M&A remain a “key priority” for UK mid-market construction companies, according to financial advisory firm Dow Schofield Watts (DSW), many (34 per cent) cite identifying suitable targets as a frequent barrier to moving forward, followed closely by cultural alignment (33 per cent).
“The M&A landscape is evolving, and businesses are recognising that strategic acquisitions offer a powerful means of accelerating growth,” said Harry Walker, corporate finance partner at DSW.
“Businesses that approach M&A with a well-defined strategy – balancing ambition with careful execution – are the ones best positioned to create long-term value.”
Other potential hurdles included securing financing, regulatory and legal matters, valuation and price negotiations, and post-merger integration.
However, there is still high ambition, with 52 per cent saying international trade or collaboration is an increasing priority for future growth.
Beyond M&A, 41 per cent of businesses reported digital transformation as a strategic priority, followed by customer experience, product development, cost-cutting, and strengthening the supply chain.
Walker added: “With increased competition, rising valuations, and the complexities of post-merger integration, success requires a clear plan.”
Little and often
According to another study, multiple small mergers and acquisitions over several years could create greater value for firms than episodic major transactions.
Companies that followed this programmatic M&A strategy over a more than 10-year period “generally outperformed peers”, management consulting firm McKinsey & Company found.
In a study of 1,000 global firms (Global 1,000) in April 2023, “programmatic acquirers” that pursued many small deals that accrue a meaningful amount of market capitalisation over many years achieved “higher excess total shareholder returns” than industry peers that favoured large deals, selective acquisitions, or organic growth.
Programmatic acquirers in the study favoured tackling both due diligence and integration planning simultaneously, holding advanced discussions about redefining roles, combining processes, and adopting tech.
Mutual corporate culture and organisational health also proved important.
“The more deals a company did, the higher the probability that it would earn excess returns,” said McKinsey at the time.
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