Zack Goddard, director, industrials M&A, Clearwater Capital
The UK construction industry is experiencing unprecedented levels of merger and acquisition (M&A) activity for contractors operating in the specialist industrial, infrastructure and technical services markets. This should continue into 2025 and beyond, as the industry continues to face rapidly increasing demand for specialist services with a shortage of skilled labour to deliver it.
There were several landmark transactions in the sector in 2024, including the majority sale of JSM Group to TowerBrook Capital Partners, CVC’s acquisition of M Group Services, the sale of BGEN to M Group Services, Global Infrastructure Partners’ investment into Lanes Group and the sale of FM Conway to Vinci Construction.
Attractive assets
Contractors providing specialist services into regulated and private power/renewables markets are proving particularly attractive to strategic buyers and private equity investors, largely driven by the need to upgrade ageing UK infrastructure and the ongoing energy transition agenda. Average annual electricity distribution network operator spend in the current price control cycle (2023-2028) is 15 per cent higher on the prior period. And investment in renewable energy across solar PV, battery energy storage systems and wind energy are all expected to ramp up over the coming years.
Specialist contractors in the regulated water sector are also becoming increasingly attractive given expected Asset Management Plan (AMP) 8 spend dynamics, with suppliers on many multi-year frameworks already being announced for the 2025-2030 investment period. Expenditure in the upcoming five-year cycle is expected to be up to 70 per cent higher than the AMP 7 period, driven by a need for improved environmental regulations and compliance, enhanced asset management and technology innovation and efficiency.
“Contractors are having to fight for talent, which will drive M&A activity”
There is also increased interest in contractors providing mechanical and electrical (M&E) services in industrial and infrastructure markets. Ageing infrastructure, energy transition, a need for more sustainable solutions and increased automation and digitisation are all driving increased demand for services.
This is not only creating revenue and margin opportunities but also opportunities for contractors to negotiate less risk on contracts. With an ageing and shrinking population of experienced engineering talent and the drain of large projects such as Hinkley, contractors are having to fight for talent, which will drive M&A activity. In this sense, the sale of BGEN to M Group Services and EMK Capital’s investment in March Group were standout transactions in 2024.
Changes to capital gains tax announced in the Budget last October are unlikely to have any significant negative impact on M&A activity in the short term and are in fact more likely to drive further deal activity as business owners seek to avoid the impact of any future potential rate increases.
The announced changes to inheritance tax are also likely to drive further M&A activity as the appeal of keeping businesses under ongoing family ownership has potentially become less attractive.
Buyer/investor dynamics in this sector are stronger than ever, with many large strategic buyers actively seeking UK-based acquisitions, an increasing number of rapidly growing private equity backed vehicles seeking bolt-on purchases to platform investments, and many private equity funds looking for their own platforms in the space.
So what should a construction business owner do if considering a potential sale of their business or taking on external investment? It is important to appoint advisors early, and to ensure value and deal terms are maximised in a transaction, contracting businesses need careful preparation and positioning.
