Building & Construction, Property and Real Estate Under the Microscope

Shaw & Co, the specialist corporate finance advisory firm, has launched the latest of its in-depth sector reports that offer SME business leaders a powerful sector overview and benchmarking tool to aid their decision making.

This latest report covers the UK Property and Construction (P&C) industry and segments 3,088 SMEs with earnings of over £1m by size and subsector – including building & construction; property; and real estate – to track their performance, profitability, debt levels, borrowing capacity and M&A activity.

The report’s key findings include:

• Performance: Merely 6% of the 3,088 companies analysed achieve an Ebitda over £20m and yet account for 79% of total turnover in the P&C industry. The industry is dominated by a small number of large companies, and barriers to entry exist for companies to compete for larger projects. As margins are being squeezed by rising raw material and energy costs, smaller players need to find ways to reduce operating costs by becoming more efficient.
• Profitability: Regardless of company size, companies across all industry sub-sectors have seen an increase in average Ebitda margin over the past 12 months which vary between 11% and 22%. Profitability in the Real Estate subsector is nearly double the other sub-sectors, suggesting this is a more attractive space to operate in.
• Borrowing: Over the past 12 months, debt levels have remained static across all sub-sectors. Approximately 80% of the total industry debt is carried by the firms operating in the Building & Construction Services sub-sector. As a whole, the P&C industry has been adversely impacted by people shortages, supply chain issues and rising costs. Lenders have been more cautious to provide funding and therefore business owners should consider turning to the alternative lending market for funding.
• Mergers & Acquisitions: There has been a high level of M&A activity within the P&C industry, with 151 deals concluded in the past year, 83% of which were with UK buyers. This bounce back in activity is largely due to deals being put on hold due to the pandemic. Also, the longer-term commercial rationale for deals remains intact. However, headwinds are already manifesting themselves with the increase in inflation and significant geopolitical uncertainty. Confidence is key to dealmaking, so business owners who wish to sell are advised to initiate the process this year, rather than waiting until 2023.

Rick Martignetti, Business Funding Advisor at Shaw & Co and editor of the report, said: “We are very pleased to have launched our first ever sector report dedicated to the Property & Construction industry. We hope that this tool will help SME business owners to benchmark their own and their peers’ performance and will provide them with a tool to assist in their decision-making process. Ultimately, our goal is to provide these SME business owners with free access to the same market intelligence as larger blue-chip corporates, who benefit from investment banking advisers. This report will also provide them with valuable insight regarding their relative creditworthiness and attractiveness from an M&A point of view.”

A full copy of the report is available here: Annual Analysis of Property and Construction Industry