The construction market is shifting at all times. Like other industries, construction firms merge and divest as industry growth ebbs and flows. The decision to associate with other partners can be crucial for success if based on the right business factors.

Construction firms need a lot of capital to be successful. In the case of homebuilding, the homeowner will pay only a small deposit with regular progress payments, but the homebuilder must buy all of the materials in advance and must pay laborers weekly. Thus, they are fronting a significant amount of capital before they, themselves, are paid. If deadlines slip or issues arise, this can strain their finances. When mergers and other activities impact their capital, they must take notice.

That’s why big mega mergers like the one taking place between Standard Pacific Corp. and Ryland Group Inc., are bringing mergers and industry consolidation to the forefront. The merger is all over the news - a $5.2 billion agreement to create the nation’s fourth largest force in home construction. In addition, the merger serves as a catalyst for a wave of consolidated building mergers.

So, why the push toward merging?

This merger is not an isolated event. Several key market factors have been changing for some time and the market is getting more difficult for smaller construction companies. 

The number of homebuilders has been steadily decreasing in past years. Some of reasons why include consumers who have been increasingly unwilling to buy newer, more expensive homes in the wake of the recession. 

Also, as a result of the recession, fewer investors are financing homes. This has caused the number of private construction companies to decrease dramatically. Despite increases in the number of public companies, overall there has been a net loss in industry players.

Additionally, stock prices in construction company initial public offerings (IPOs) have been skyrocketing in the past few years. This creates expensive barriers to entry on the stock market for smaller companies and has resulted in smaller companies not being able to get the investment they require to operate at basic production levels, much less thrive.  

This creates a simple situation for large corporations that having buying power to move however they please. It makes the situation for small companies a bit more difficult. In doing so, it creates new parameters for a successful business in this brave new world.

Getting Acquired

If you are a construction company owner looking to be acquired, take on as many ambitious projects as your company is capable of completing. This will add value to your company and is good for publicity, and publicity is good for market share. 

Additionally, hiring employees with good histories and a passion for the industry will add another element of value to the business. 

By going above and beyond the call of duty you will get good press that will make you more attractive to consumers as well as to larger companies and corporations.

Maybe you’re not looking to be acquired. Maybe you don’t want to give up control of company policy or take the chance at hurting your existing income. There are still smaller companies vying for projects and success; even in these times of tight capital. However, the same advice to take on ambitious projects and promote these to the public still applies. If your construction company is enough of a maverick, it could still compete for jobs with the larger companies without merging or being consumed.

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