Construction Update: Will Economic Challenges Bring Greater Consolidation?

How are things going,” you ask? Well, the drop-off volume in the fourth quarter of 2009 has continued into 2010. AGC has gone on record, stating that construction spending has dropped to 2002 levels. Couple this with increased competition from contractors outside our traditional markets, and that spells trouble.

This area has a significant amount of contractors that have a fair amount of revenues. However, other areas have fewer contractors, but they are much larger in terms of revenues. Some believe that so much capital spending occurs by universities and health care systems in this area, that these institutions do not concentrate their spending with a few contractors. Rather, they spread it around to many contractors, hence the reason for so many contractors in this region.

With so many contractors and so little work, I wonder if consolidations, mergers and acquisitions will occur within this industry. Consolidations occur all the time in other industries. Construction, on the other hand, hasn’t seen that market rush, probably because of the recent good times. However, with continued business and economic pressures, construction companies will look at all opportunities – in particular consolidations.

Consolidations change everything. However, bringing two struggling companies together doesn’t make one good company. I’m sure many strategic planners have already begun to think about this topic. Time will only tell if my hunch is true.

Schneider Downs provides accounting, tax, wealth management and business advisory services through innovative thought leaders who deliver the expertise to meet the individual needs of each client. Our offices are located in Pittsburgh, PA, and Columbus, OH.

This advice is not intended or written to be used for, and it cannot be used for, the purpose of avoiding any federal tax penalties that may be imposed, or for promoting, marketing or recommending to another person, any tax related matter.

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