Industry Description
The industrial building construction industry in the U.S comprises contractors primarily engaged in the construction, modification, and maintenance of industrial and manufacturing facilities (NAICS 23621). The industry also includes general contractors, design-build firms, and construction management operators who oversee projects ranging from new constructions to alterations and repairs of existing structures.
The following are some basic characteristics of the industrial building construction industry:
- Industrial building construction industry has a combined revenue of $46.3 billion with a growth rate of 1.7% in 2019-2024
- There are approximately 3,100 businesses as of 2019
- The industrial building construction industry employs approximately 858,000 people
Industry Trends
The industrial building construction industry is highly fragmented and has low levels of market share concentration, with the top three industry operators comprising approximately 11% of industry revenue in 2019. The largest players have numerous locations across the US, while small players are typically independently owned and operated in 1-2 states. Some key external factors that influence this industry are (i) e-commerce expansion, (ii) technological advancements, and (iii) regulatory changes. Each of these is described in further detail below.
The development and rise of e-commerce within the U.S. has had an extreme impact on how businesses work. The U.S. e-commerce space is anticipated to grow by $657.8 billion between 2024 and 2029. This has led to companies looking for industrial space in key areas where the vicinity of shoppers is critical. This has included urban and suburban districts with companies such as Amazon and Walmart investing heavily in new warehouse offices. With the new market segment rising, construction firms specializing in large-scale industrial projects have seen an increase in demand, which is expected to continue rising.
Developments in technology have been a vital aspect of industry evolution where automation and robotics have become the norm. Building Information Modelling (BMI) has improved efficiency and minimized construction costs by reducing waste in construction. Productivity in the construction industry can be improved by up to 60% using modern technologies. Furthermore, the latest building energy materials and energy-efficient products have been emphasized due to environmental sustainability efforts. This is particularly true for the regulatory requirements that have been met because of these technologies and subsequently improved the competitiveness of these companies.
Regulatory changes related to environmental and labor benchmarks have affected the construction industry due to the prioritization of climate change and sustainable advancement. This has led to the regulations aimed at diminishing greenhouse gas emissions which largely come from fossil fuels used for heat. This means incorporating energy-efficient designs and materials in projects. These will cost more but will result in long-term savings and compliance benefits. In addition, regulatory necessities associated with labor such as improving worker safety and compensation have continued to affect the industry as companies invest in training and better working conditions.
The industrial building construction industry in the U.S has been influenced by external factors such as the rise of e-commerce, technological progressions, and changing regulatory frameworks. To remain competitive, companies must continue to adapt to these changes while adopting practical procedures that align with market demands and regulations. These regulations are expected to cost more initially but will result in savings and compliance benefits.
Key Performance Metrics
In evaluating the industrial building construction industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Backlog
- Bid-win ratio
- Client satisfaction
- Construction cycle time
- Defect rate
- Project completion rate
Industry Organizations & Publications
The following organizations publish useful information:
- American Institute of Constructors (AIC)
- Associated Builders and Contractors (ABC)
- Associated General Contractors of America (AGC)
- U.S. Environmental Protection Agency (EPA)
Guideline Information: Private Purchase Transactions
Most industrial building construction companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held industrial building construction companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of industrial building construction companies:
- Revenue multiples between 0.2 and 1.3 times
- Gross Profit multiples between 0.9 and 5.6 times
- EBITDA multiples between 2.0 and 10.5 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most industrial building construction companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The four largest publicly traded U.S industrial building construction companies ranked by market capitalization are:
- Jacobs Solutions Inc. (J) – $18.3 billion market capitalization
- AECOM (ACM) – $13.1 billion market capitalization
- Fluor Corporation (FLR) – $8.1 billion market capitalization
- NV5 Global Inc. (NVEE) – $1.5 million market capitalization
The Price-to-Earnings (P/E) ratios of these four companies range between 20.4 times and 45.9 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Industrial building construction companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.