Market predictions play out in active Building Products & Services sector

Following an active first quarter in the Building Products & Services M&A market, it appears the predictions made in our last sector insight report are playing out. Amidst high levels of uncertainty, we saw many reasons for optimism in the sector in 2020 – so much so that it created a strong expectation that M&A activity levels would rebound towards the end of the year and into 2021.

With four transactions completed in Q1 of 2021, adding to three in H2 2020, that sense of optimism is being reflected in the pattern of M&A deals our UK team are seeing in the market. Yes, we continue to live in uncertain times, but the ability of the sector to stand up to the challenges, and the Government’s ongoing commitment to new house building and infrastructure expenditure, are precisely the catalysts the market needs to keep on doing M&A.

The appetite of private equity seen in the last two years also shows no signs of waning, with 25% of our M&A transactions in the sector involving private equity investors. What’s more, corporates continue to demonstrate a desire to consolidate in chosen markets, carving out non-core businesses, while agile owner-managed companies are continuing to adapt to the ongoing obstacles being placed in front of them in a diverse and dynamic marketplace.

So, what has been happening in the M&A market?  We have seen deals ranging from infrastructure to plumbing, timber engineered products, doors, HVAC and lighting and security. We have also seen an increasing emphasis on the sector themes of sustainability and technology in our transactions.

In October 2020, BDO provided buy-side advice to Gore Street Energy Storage Fund – London's first listed energy storage fund, which supports the transition to low carbon power. The acquisition of an 81MW operating storage portfolio for £28.2 million resulted in the company's operating portfolio increasing by almost four-fold from 29MW to 110MW, with total storage assets increasing to 320MW. With continued investment in infrastructure products to produce renewable energy, we expect to see the need for storage products and services to increase.

Following that deal, we advised the shareholders of StairBox Limited on the sale to Grafton Group plc for £44 million. StairBox is a leading manufacturer and distributor of bespoke wooden staircases and has experienced significant growth in recent years following investment in innovative software technology and state-of the-art factory production. Grafton Group was attracted by a dynamic manufacturing business with best-in-class online solutions.

In January 2021, we worked with Sanbra Fyffe – an Irish-based manufacturer and distributor of a wide range of quality approved products and brands to an established network of retail and trade merchant customers across the Building Products market. The company bolstered its position in the sector with the acquisition of UK-based The Majestic Shower Company. This followed on from its first UK acquisition of Marflow Engineering, which BDO advised on last year. These strategic acquisitions expand the brand portfolio and customer network of Sanbra, providing opportunities to extend offerings across the UK, Ireland, France, Italy and Benelux.

Martin Murphy, Managing Director at Sanbra Group, described the M&A team as ‘professional’ and ‘responsive’. He said: “I am not aware of an acquisition search and approach capability of the same calibre available elsewhere."

At the beginning of March 2021, and within the space of just a few days, we closed M&A sales for Allegion plc on the non-core carve-out of QMI Door Solutions in the UAE to HLD Group in the UK; HVAC company Mikrofill 2000 Limited on the sale to Stuart Turner Limited backed by LDC; as well as advising the shareholders of Prolectric Services Limited on its sale to Hill & Smith Holdings PLC for up to £18.2 million.

Prolectric Services is a UK market leader in off-grid solar energy solutions. It offers a range of remotely monitored lighting and security products, either for rental or sale, which are field proven in rail, road and other niche infrastructure applications. The technology also enables customers to measure the reduction in CO² emissions versus diesel powered alternatives. The business benefits from the ongoing transition from fossil fuels to a zero-carbon economy and the need to reduce noise pollution, driven by government legislation and customer demands.

In 2020, BDO was the most active global mid-market deal adviser, and in the Building Products & Services sector, we completed over 150 deals across the globe. As we continue to follow the roadmap out of the pandemic, that position has been solidified and proves that the Building Products & Services sector remains an extremely active place to do business.

If you have any further questions, please contant John Stephan and Mithun Patel.