Market Insights: Seizing the moment

By and |  February 16, 2022
The National Association of Home Builders expects residential construction to expand this year, despite significant headwinds.

The National Association of Home Builders expects residential construction to expand this year, despite significant headwinds. Photo: Michael Warren/IStock / Getty Images Plus/Getty Images

We have been talking about the “war on talent” in our industry for more than a decade now, having lost a generation of early- and mid-career workers during the Great Recession. And while growth is good for the industry, the paradox of increased construction spending and a tighter labor market will be a true challenge for some firms.

Unfortunately, there is no simple fix for this problem.

While construction materials plant facilities have been able to use automation and increased shifts to boost production, transportation and construction require skilled crews and drivers, which are in short supply. Firms that cannot access enough skilled labor will see constrained growth.

Wage increases may help with recruitment and retention – particularly long-term incentivization – but FMI research shows that employees stay loyal when they feel a sense of connection to their work. Best-in-class firms achieve this through investing in talent acquisition, development and retention programs and by helping map the future for their people.


The Consumer Price Index hit 7 percent in 2021, the highest level in 40 years and well above the Fed’s desired boundary.
Inflation issues remain uncertain, but construction materials firms have shown resilience. In the face of cost increases for labor, fuel and parts, many companies have been able to pass along expenses to customers and maintain margins.

Still, price increases typically lag in periods of rapidly increasing input costs. Cemex, for example, cited a 34 percent year-over-year increase in cement import costs and a 19 percent rise in energy costs as a significant drag. The company was able to institute a second round of price increases in 2021 for the first time in more than a decade, and it has plans for two more price increases in 2022.

Whether firms benefited from or felt the crunch of inflation came down to cost structure and pricing power through the supply chain. Firms with strong market positions and efficient operations are poised to fare better in an inflationary cycle. Price pressures for energy, cement inputs, liquid asphalt and labor will all remain a challenge for construction materials firms in 2022.

Mergers and acquisitions are on the upswing, with a great deal of the action being smaller deals. Photo:

2021 was a year full of both large and small mergers and acquisitions. Photo:

M&A landscape

2021 presented an acquisition-rich environment for construction materials. Cash on hand, solid earnings and the labor challenge poised the industry for continued consolidation. Two 2021 megadeals illustrated this: Martin Marietta’s purchase of Lehigh Hanson’s West Region assets, and Vulcan’s acquisition of U.S. Concrete.

Going into 2022, we saw twin tailwinds of cash-rich investors and prolonged government investment leading to further acquisitions across all three types of deals: bolt-on acquisitions, platform transactions and “thunderclap” consolidations.

Public markets are rewarding buyers for having more cash, less leverage and consistent high levels of EBITDA (earnings before interest, tax, depreciation and amortization). These factors, combined with the continued residential boom and passage of IIJA, have buyers eager to grow by pursuing mergers and acquisitions.

Construction materials leaders thinking about selling in the next few years should find an optimal market at this time. There are no dark clouds on the horizon right now, but the unknowns will grow further into the future.

We advise sellers to leave some “bloom on the rose,” which means to sell when things are going well rather than attempt to log more successful years and risk losing momentum or buyer appetite. The synergies that drive many deals can depend on timing – and good timing for deals can pass quickly. The bottleneck on the buyer side is not capital, but limited resources to handle so many deals – the result of which is a tight focus on very strategic deals.


The stars have aligned, with a historic infrastructure bill, decades of underinvestment in the nation’s roads and bridges and an ongoing boom in the residential sector all contributing to strong demand for construction materials.

A once-in-a-generation federal investment is a windfall for construction materials producers across the U.S., but the sheer uptick in demand will challenge an industry beset by labor shortages. As funds begin to come down the chute, firms’ ability to capitalize will depend, in part, on their talent development and retention strategy and on their alignment within the industry. Buyers will have fresh motivation to grow via M&A, as it is more efficient to acquire people than to grow an organization organically.

Within the industry, of course, sell decisions are complex and often intensely personal when concerning a family-run business. A deal needs to be right. A prolonged period of federal investment has the potential to catalyze changes in the industry, especially as firms steer through shorter-term inflation, interest rate hikes and supply chain challenges.

As in any period of turbulence – good or bad – those with a solid strategy will fare best. The 2022 outlook is very good indeed for construction materials, but the challenge is now on firms to decide how to take advantage of the moment.

George Reddin is a managing director and Rob Mineo is a director with FMI Capital Advisors.

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