SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot

 
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
B U I L D I N G P RO D U C T S & S E RV I C E S

                               SECTOR INSIGHTS
                               2019 | BDO MERGERS & ACQUISITIONS

B U I L D I N G P RO D U C T S & S E RV I C E S

SECTOR INSIGHTS
         2018 | BDO MERGERS & ACQUISITIONS
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
01   BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

BDO is the #1 M&A advisor in the World.*
A leading adviser in the Building Products and Services sector, our
deep knowledge, experience and expertise helps our clients achieve
their strategic objectives.

KEY THEMES

04                           07                             08                  09
THE UK AND US ARE            BUILDING                       PRIVATE EQUITY IS   UK QUOTED
THE MOST ACTIVE              MATERIALS, HVAC                KEEN TO INVEST      SECTOR INDEX HAS
M&A MARKETS FOR              AND PLANT HIRE ARE             IN THE SECTOR,      OUTPERFORMED THE
BUILDING PRODUCTS            THE MOST ACTIVE UK             CREATING A HIGHLY   STOCK MARKET
& SERVICES                   SUB-SECTORS OVER               COMPETITIVE DEAL
TRANSACTIONS                 THE LAST TWO YEARS             ENVIRONMENT

10                           21                            25
COMPANY                      GROWTH IN                     KEY FACTORS SUCH
VALUATIONS IN THE            INFRASTRUCTURE                AS TECHNOLOGY
SECTOR CONTINUE              SPEND ACROSS                  AND GREEN
TO INCREASE                  EUROPE IS EXPECTED            CONSTRUCTION
                             TO SUSTAIN                    DRIVING INVESTOR
                             GROWTH IN                     INTEREST IN
                             THE SECTOR                    THE SECTOR

*#1 Global M&A advisor by deal volume – Pitchbook 2018 league tables
  #1 European M&A advisor by deal volume – Pitchbook 2018 league tables
  #1 UK M&A adviser by deal volume - Experian 2018 adviser league tables
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES   02

The Building Products and Services sector continues to see unprecedented
levels of M&A activity.
Double-digit growth in transaction volumes over the last four years has been driven by rapid technological innovation,
legislative changes and evolutions of supply chains and business models. There is immense opportunity for corporates
and private equity investors alike to drive value. We are looking forward to a dynamic year ahead and expect to see M&A
activity levels sustained.

                                                                                         JOHN STEPHAN and MITHUN PATEL

  OVER
          3,300 SECTOR
                TRANSACTIONS
                                                                 EUROPEAN
                                                                 DEAL VOLUMES
                                                                                   43% TO  228
  ACROSS THE GLOBE IN THE LAST 6 YEARS                           INCREASED BY          IN 2018

  28% OF GLOBAL TRANSACTIONS WERE
      CROSS-BORDER IN THE LAST 6
      YEARS
                                                                 OVER
                                                                         1,000 DEALS  IN THE UK IN THE
                                                                               LAST SIX YEARS

    26% OF UK BUILDING
        PRODUCT TRANSACTIONS                                       AVERAGE EV/EBITDA

                                                                                         7.1x (6.9X IN 2017)
        HAD PRIVATE EQUITY                                         PAID IN 2018 WAS
                 INVOLVEMENT IN 2018
                 (20% IN 2017)

   MULTIPLES AND
                      INCREASE                                   UK INFRASTRUCTURE CONSTRUCTION TO RISE BY

                                                                 8.8%
   TRANSACTION                                                               IN 2019 AND 7.7% IN 2020
   VOLUMES             ACROSS ALL SECTORS
   CONTINUE TO
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
03    BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

INTERNATIONAL M&A ACTIVITY
OVER 800 DEALS IN 2018 AND DOUBLE DIGIT GROWTH

NUMBER OF TRANSACTIONS BY SELLER LOCATION
SECTOR TRANSACTIONS 2013-2018

               % growth YOY            -4.4%                  22%              29.3%            25.6%               11.3%

      900

      800                                                                                                            42

       700                                                                                        40

      600                                                                                         159               228
                                                                                  35
       500                                                                       141
                                                               44                                 233               238
      400
                      60                    59                136
      300                                                                        206                                 25
                     125                    102                                                   40
       200                                                    163                28
                     126                    125                                                   265               287
       100                                                     9
                      16                     19                                  177
                      62                     67               102
         0
                     2013              2014                   2015               2016            2017               2018

                            United States         Other Americas     United Kingdom     Other Europe    Rest of World

BUILDING PRODUCTS & SERVICES M&A SEES ANOTHER YEAR OF DOUBLE-DIGIT GROWTH WORLDWIDE

The Building Products & Services sector is a highly active and           OVER A QUARTER OF M&A ACTIVITY IS CROSS BORDER
dynamic market for M&A transactions and has seen yet another
                                                                                                Number of cross-           Percentage of
record-breaking year for deal volumes across the globe, with 820
                                                                                                   border deals                    total
transactions completed in 2018.
                                                                          2018                               206                  25.1%
The UK and the US remain by far the most active markets for
                                                                          2017                               188                  26.2%
deals, accounting for 29% and 35% of global transactions
respectively in 2018. Europe (excluding UK) saw a 43% increase            2016                               143                  25.3%
on deal activity in 2018, accounting for 28% of global M&A.               2015                                136                30.0%
Cross-border deals remain a major feature of the market,                  2014                                116                 31.2%
representing over a quarter of all transactions. This trend is            2013                                128                 32.9%
expected to remain a solid feature of the landscape as businesses
seek to develop global reach and acquire sector specialisms,
technology and skill-sets.

     OVER
             3,300 SECTOR
                   TRANSACTIONS
                                                                               EUROPEAN
                                                                               DEAL VOLUMES
                                                                                                  43% TO  228
                                                                                                      IN 2018
     ACROSS THE GLOBE IN THE LAST 6 YEARS                                      INCREASED BY
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES                               04

                                              MOST ACTIVE COUNTRY ANALYSIS
                                                                         UK AND US ARE THE MOST ACTIVE M&A MARKETS

MOST ACTIVE COUNTRY ANALYSIS

                                                              AS A BUYER                         AS A SELLER

                                                             UNITED KINGDOM                      UNITED KINGDOM

                               224                                                                                                               238

                                                                  UNITED STATES                  UNITED STATES

                                274                                                                                                        287

                                                                          SWEDEN                 SWEDEN

                                                                    72                              40

                                                                            FRANCE               FRANCE

                                                                     41                             19

                                                                         GERMANY                 GERMANY

                                                                            35                      32

                                                                          CANADA                 CANADA

                                                                            28                      24

                       1,000         800       600          400          200            0    0           200       400          600       800    1,000

                                       2018   2017   2016    2015    2014        2013             2018     2017   2016   2015    2014   2013

                                                                                                                                                       Source: MarketIQ and BDO Analysis

THE UK AND THE US ARE THE MOST ACTIVE COUNTRIES FOR M&A IN THE SECTOR

                   Building Products & Services transactions                                                 We expect the US Building Products & Services
                   continued to rise in the UK market in 2018.                                               sector to experience continued growth in 2019,
                   Following three years of double-digit growth in                                           albeit at a more modest pace. The US economy
                   volumes, the UK saw another encouraging year                                              remains relatively strong and demand for new
                   in 2018, with deal volumes rising by 9.5%. The                                            construction and remodels continues, thanks to
                   proportion of cross-border activity increased                                             low unemployment, gradually increasing wages,
to 19% as international acquirers continue to view the UK as an                             and a stabilizing interest rate environment. Forward looking indices
important international trading partner. Financial investors have                           published by industry groups such as National Association of
sustained interest in the sector, representing 26% of transactions                          Home Builders (NAHB) and the Joint Center for Housing Studies,
in the year. Looking forward, geo-political and macro-economic                              as well as data gathered by Dodge Data, all support this view. There
uncertainties may create some market challenges. However,                                   are notable headwinds however, including the increasing cost
most business leaders we speak with are optimistic about                                    of material and labor inputs – resulting from a tight skilled labor
the coming year and believe the strong underlying demand,                                   market and the recent tariffs – which will remain a drag on sector
particularly from infrastructure, will sustain the sector in 2019.                          growth this year. These inhibitors are fueling M&A activity though
                  MITHUN PATEL | M&A Director, United Kingdom                               as industry players seek to improve efficiencies in part though
                                                                                            synergistic acquisitions. As such, sector valuation multiples should
                                                                                            remain high by historical standards.
                                                                                                                DANIEL SHEA | Managing Director, United States
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
05    BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

MOST ACTIVE COUNTRY ANALYSIS
BUOYANT M&A MARKETS EXPECT TO SEE VOLUMES SUSTAINED IN 2019

                     The German Building Products M&A market            NUMBER OF TRANSACTIONS BY TARGET REGION
                     was very buoyant in 2018, not only compared to     EUROPE
                     2017 but also to the last five years. The number   EUROPE

                     of deals involving a German target increased        500

                     by 77% and those involving a German bidder          450
                                                                                                                                                                                      66
                     increased by 66% year-on-year. This was above       400
                                                                                                                                                                                      32
wider M&A trends in Germany. Trade buyers were the most active,          350
                                                                                                                                                                 56
                                                                                                                                                                                      38
with international bidders predominantly originating from Europe         300
                                                                                                                                               38
                                                                                                                                               18
                                                                                                                                                                 18
                                                                                                                                                                 16                   19
                                                                                                                                                                 22
and the US, while German bidders were primarily active in Europe                                                          30
                                                                                                                          15
                                                                                                                                               14
                                                                                                                                               11                47
                                                                                                                                                                                      73
                                                                         250
with the significant exception of Gebr. Knauf’s US$7bn acquisition                   27
                                                                                     23               24
                                                                                                                          23
                                                                                                                          18
                                                                                                                                               60
                                                                         200
of United States Gypsum.                                                             21               16
                                                                                                      16                  50
                                                                         150         39               20
There were a number of deals involving mid-market PE investors                       15               26
                                                                                                                                              206
                                                                                                                                                                233                  238
                                                                         100
including Adcuram, Afinum, Alveus, Finatem, KAP and Odewald.                        126            125
                                                                                                                          163
                                                                          50
While Adcuram has a history of investing in the sector the
others were relative newcomers. Interestingly, two of the deals               0
                                                                                   2013          2014                    2015                2016              2017                  2018
involved service providers reflecting increased interest in the sub-                       United Kingdom       Nordics         France     Benelux    Germany         Other Europe

sector driven by full order books and the increasing complexity
of buildings driven by regulation and technology including
                                                                        AMERICAS
digitization. Transactions were widely spread across a large range
of sub-sectors, heavy and light, manufacturing and distribution         350
                                                                                                                                                                                      1
with a perceptible ongoing interest in HVAC systems and                 300
                                                                                                                                                                4
                                                                                                                                                                                     24
security, and new interest in specialist installers/maintenance and                                                                                             36
                                                                        250
technical planners. Deals in HVAC are being driven by a desire to                                                                              3
extend geographical footprint and/or gain access to                     200
                                                                                                                                              26
new technologies.                                                        150
                                                                                                                                                               265
                                                                                                                                                                                     287
                                                                                                                          1
The German construction market is the largest in Europe and              100
                                                                                    4             6                       8                   177
                                                                                                  13
while growth is expected to slow in 2019, the level of output is         50
                                                                                    12                                   102
                                                                                    62            67
still very high in absolute terms. The biggest perceived risk to          0
growth is a lack of capacity and skilled workers, which is already                 2013          2014                 2015                   2016              2017                  2017

leading to an increase in prices and delays on projects in some                                             United States         Canada      Other Americas

regions. Given these parameters, combined with technological
and regulatory trends we anticipate M&A activity to remain              REST OF WORLD
buoyant with a strong likelihood that deal volumes will increase
again in 2019.                                                          70

                       JANE EVANS | M&A Senior Manager, Germany         60

                                                                        50
                                                                                   29
                                                                        40                       25
                                                                                                                         17                                                          22
                                                                        30                                                                                      17
                                                                                                  5                                           16
                                                                                   10                                    3
                                                                        20                                                                                      2                    6
                                                                                                 12                      9
                                                                                                                                              9                 7                    2
                                                                         10        10
                                                                                                                         13                   4
                                                                                    7            11                                                             11                   12
                                                                                                                                              6
                                                                         0
                                                                                  2013          2014                 2015                   2016               2017              2018

                                                                                                             Australia         China       India     Other

                                                                        Source: Market IQ and BDO analysis

     28% OF GLOBAL DEALS WERE CROSS-
         BORDER IN THE LAST SIX YEARS
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES         06

                    M&A activity in the                              M&A activity in                                Canadian M&A
                    Building Products &                              France was sustained                           activity within the
                    Services sector in the                           at high levels in                              building products
                    Nordics saw a boom in                            2018, supported                                sector experienced
                    2018, with 180 deals                             by 3.2% growth in                              strong growth in 2017
                    recorded involving                               construction output                            and companies are
a Nordic buyer or seller, up by 89%             in the year. Alongside a wide spread of          expected to continue growing through
compared to 2017. Noteworthy deals              mid-market deals, there have been some           acquisition in 2018. Despite the concerns
in 2018 include the 49.8% stake sale of         large transformational cross-border              of US tax reform and trade agreements,
the Swedish flooring company Välinge            transactions. These include the sale             2017 saw several Canadian and foreign
Innovation by US-based investment               of Edilians, (formerly known as Imerys           buyers looking to capitalize on favourable
firm KKR to the Danish holding and              Toiture, a subsidiary of Imerys group            economic conditions to expand
investment company Kirkbi for a value of        specialising in tiles and bricks), which         geographically or expand their service
€417m, and the sale of Blowtech Group,          was sold to the US Lone Star Funds for           offering. For example, Exchange Income
a Swedish developer and manufacturer of         €1bn midway through the year, and more           Corporation, a Canadian conglomerate,
high performance blow moulded plastic           recently, the sale of The Parex Group, a         acquired Quest Window Systems, a
components to listed Swedish company            specialist in dry mix mortars, which was         Canadian manufacturer of unitized
Xano Industri. The year also saw the merger     sold to Swiss group SIKA, manufacturer           window wall system, for 6.7x EBITDA.
between Swedish engineering consultant          of speciality chemicals in early 2019. The       Further to this, Dormakaba Holding
ÅF and Finnish engineering group Pöyry          Parex Group was sold by CVC Capital              AG, a Swiss access and security solution
Plc. The takeover offer by ÅF represented       Partners for an enterprise value of €2.2bn.      provider, acquired Skyfold Inc., a Canadian
an enterprise value of €586m (EV/EBITDA         Corporate carve-outs are being progressed        manufacturer of automated vertical
multiple of 19.5x). We anticipate M&A           by French building products leader Saint         folding wall systems, for 8.5x EBITDA.
activity in the sector to sustain at current    Gobain, whose portfolio review is leading        Driven by a favourable economic outlook,
levels through 2019.                            to a divestment program with a number            the optic of Canada as a safe harbour for
                    CLAES NORDEBÄCK |           of subsidiaries earmarked, including             investment capital and the abundance
           Partner, Corporate Finance, Sweden   Xuzhou Pipe, building distribution in            of cash on corporate balance sheets,
                                                Germany, a silicon carbide business,             we expect 2018 to be positive for M&A
                                                and possibly further business units. The         transactions in the sector.
                                                outlook for M&A in 2019 is positive:                                       RYAN FARKAS |
                                                construction output continues to                            Corporate Finance Partner, Canada
                                                develop particularly in infrastructure as
                                                opportunities arise in preparation for the
                                                Paris 2024 Olympics.
                                                                        PASCAL MARLIER |
                                                        Partner, Le Bipe, BDO Advisory, France
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
07   BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

UK M&A ACTIVITY SUSTAINED
NEW RECORD FOR DEAL VOLUME IN 2018

2018 TRANSACTION VOLUMES                                             UK TRANSACTION VOLUMES SINCE 2008
254 deals involving a UK buyer or a UK seller completed in 2018,     300
an increase of 9.5% over 2017 volumes, which follows three
previous years of double-digit growth. In spite of uncertainty in     250
the wider market, M&A remains highly dynamic and competitive.
                                                                     200
Given the strong underlying fundamentals and ongoing market
demand, we expect consolidation in the UK to be sustained.
                                                                      150
Although large corporates are increasingly looking to overseas
markets for M&A, the UK is still a key area for acquisitions due
                                                                      100
to the high number of quality businesses and the importance of
maintaining and growing market share. Meanwhile, private equity
                                                                       50
has cash ready to invest in the market, stiffening the competition
between buyers and increasing the potential to drive high values
                                                                        0
for attractive target businesses.                                           2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

                                                                                                                      Manufacturing           Distribution                    Services
Manufacturers continue to make up the majority of transactions
                                                                     Source: Market IQ and BDO analysis
in the sector, with investors attracted to high margins,
innovative products, use of technology and in particular, IP.
Technology is driving the evolution of business models, creating     SUB-SECTOR ANALYSIS:
opportunity for dynamic businesses to capitalise.                    TRADE AND FINANCIAL TRANSACTIONS SINCE 2008

Distribution assets continue to be sought by investors and           300
corporates seeking to build a regional or national roll-out model.   250
Typically, building product distributors have limited or nascent
                                                                     200      39
online offerings, which makes for an interesting and attractive
growth opportunity.                                                   150

Transactions involving companies that provide services to the        100
sector have steadily increased year on year. Service providers
                                                                       50
benefit from recurring revenues and the highly fragmented                                       7
nature of the sector presents numerous opportunities                    0
                                                                             Building
                                                                            Materials

                                                                                          & Insulation

                                                                                                              HVAC
                                                                                                         & Plumbing

                                                                                                                        Electrics
                                                                                                                       & Lighting

                                                                                                                                    Windows
                                                                                                                                    & Doors

                                                                                                                                                   Interiors &
                                                                                                                                              Surface finishing

                                                                                                                                                                  Kitchen &
                                                                                                                                                                  Bathroom

                                                                                                                                                                              & Access

                                                                                                                                                                                          Flooring
                                                                                                                                                                                         & Carpet

                                                                                                                                                                                                     Plant hire

                                                                                                                                                                                                                   Merchant /
                                                                                                                                                                                                                  Distributors

for consolidation.
                                                                                        Roof, Cladding

                                                                                                                                                                              Security

Building materials continued to be the most active sub-sector
in 2018, maintaining its share of 15% of deals. The attraction of
gaining greater control of raw materials and the supply chain        Source: Market IQ and BDO analysis                              Trade               Financial
through vertical integration continues to be a strong rationale.

HVAC & Plumbing has been the most active sub-sector since
2008, and accounted for 14% of deals in 2018. Regulatory
change and technological advancements spur ongoing interest
from both trade and private equity investors.

     OVER
              1,000               DEALS IN THE UK IN
                                  THE LAST SIX YEARS
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES            08

            PRIVATE EQUITY HAS A GROWING INTEREST
                                    IN THE SECTOR
                                            CREATING A HIGHLY COMPETITIVE DEAL ENVIRONMENT

PRIVATE EQUITY DEALS SNAPSHOT
Private equity is a growing feature of the M&A landscape for Building Products & Services. Since 2008 nearly a quarter of all investments
in the sector have received private equity investment. Certain sub-sectors have attracted higher levels of investor interest: since 2008
37% of Windows and Doors transactions, 35% of Kitchen & Bathroom deals, 31% of Roof, Cladding & Insulation deals, and 28% of
Interiors & Surface Finishing deals have attracted private equity investment.

Private equity is attracted by the potential high returns in the sector, which can be achieved through consolidation of fragmented sub-
sectors and the professionalisation of businesses. Product innovations, increased regulation and a shift in economic conditions have
created opportunities for investors to create value and maximise returns. Opportunities exist throughout the supply chain, where private
equity has had increasing success in bidding against trade for quality assets.

 PRIMARY CAPITAL                                                         CAIRNGORM CAPITAL
 STRATEGIC BUYS IN DISTRIBUTION AND RAIL SERVICES                        ACCELERATED BUY-AND-BUILD STRATEGIES IN BUILDING
 Primary Capital and management acquired VJ Technology,                  PRODUCTS MANUFACTURING AND DISTRIBUTION
 a distributor of technical fixings, fasteners and consumables
                                                                         Cairngorm Capital is developing platforms in fragmented
 to the infrastructure, commercial and wider construction
                                                                         sub-sectors of the Building Products market where it can apply
 industry. Acquired from SIG, the disposal was part of a
                                                                         sector expertise to enable transformational growth and build
 medium-term strategy of disposing of smaller non-core
                                                                         industry-leading companies.
 businesses to refocus the Group’s portfolio and strengthen its
 balance sheet. Primary’s investment will accelerate the growth          Cairngorm acquired Thornbridge in November 2017 as a
 plans of VJ Technology and establish the business as a leading          platform to consolidate the specialist UK timber distribution
 distributor on a national basis.                                        market. This transaction was followed by three further deals in
                                                                         the next twelve months. North Yorkshire Timber was acquired
 In the previous year, Primary backed the MBO of                         in February 2018, bringing seven branches in the North East
 Readypower, which provides rail infrastructure services.                of England and specialist timber engineering capability. This
 Following the MBO, Readypower acquired Terrawise to                     was followed by Dundee-based Rembrand Timber in July
 further develop the range of services and enhance its                   2018, creating the leading timber merchant in Scotland. The
 market-leading position.                                                acquisition of Arnold Laver, headquartered in Sheffield with
                                                                         £140 million turnover in November 2018 was the next step in
                                                                         establishing the National Timber Group. Today the National
                                                                         Timber Group has 52 timber processing and merchant sites
                                                                         across the UK, revenues of more than £250 million and over
                                                                         1,300 employees.

                                                                         Customade Group, a £100 million revenue multi-product
                                                                         trade fabricator of windows and composite entry doors was
                                                                         created through the acquisition of four companies in a nine
                                                                         month period including the initial acquisition of Polyframe in
                                                                         July 2016. Cairngorm led five proprietary investments in ten
                                                                         months to build Customade’s sister company, Stevenswood,
                                                                         into a national distributor of windows and doors from 36 trade
                                                                         counters across the UK.

                                                                         Cairngorm led the investment in Parker Building Supplies in early
                                                                         2018, a leading Builders’ Merchant based in the South East of
                                                                         England with turnover of £67 million. Parker has an ambition to
                                                                         grow significantly in the next few years through a combination
                                                                         of further bolt-on acquisitions and organic branch openings.
   26% OFTRANSACTIONS
            UK BUILDING PRODUCT
                       HAD PRIVATE EQUITY
       INVOLVEMENT IN 2018
                                                                         More recently, Cairngorm acquired Sentry Doors in early 2019,
                                                                         a specialist manufacturer of timber fire and security door-sets,
                                                                         as an entry point into the fire protection sector.
SECTOR INSIGHTS BUILDING PRODUCTS & SERVICES - Zenoot
09                         BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

SECTOR INDEX PERFORMS STRONGLY
CAPITAL MARKET INVESTORS REMAIN INTERESTED IN THE SECTOR

BUILDING PRODUCTS INDEX OUTPERFORMED THE FTSE IN 2018
UK listed Building Products & Services companies performed strongly in 2018, with share prices maintaining a growth profile, and
overtaking the FTSE all share. The dip seen in both indices at the end of 2018 started to bounce back early in 2019.

SHARE PRICE PERFORMANCE IN THE BUILDING PRODUCTS & SERVICES SECTOR

                           500%                                                                                                                                          14.0

                                                                                                                                                                         12.0
                           400%

                                                                                                                                                                         10.0
Share price % change

                           300%

                                                                                                                                                                                Quoted EV/EBITDA
                                                                                                                                                                         8.0

                           200%

                                                                                                                                                                         6.0

                           100%
                                                                                                                                                                         4.0

                              0%
                                              2011               2012                2013   2014           2015        2016            2017            2018

                           -100%                                                                                                                                         0.0

                                           BDO's top 30 quoted Building Products                   FTSE All Share             BDO's top 30 quoted Building Products
                                           & Services companies: share price index                 share price index          & Services companies: historic EV/EBITDA

Source: Capital IQ and BDO Analysis

                       CHARACTERISTICS ATTRACTING HIGH VALUATION MULTIPLES

                       •    Manufacturers with intellectual property or a defensible                   •     Businesses operating in highly regulated sectors such as HVAC
                            market position
                                                                                                       •     Businesses with contracts in the
                       •    Distribution businesses with growing online sales                                high-growth infrastructure market
                       •    Service providers with a strong forecast order book and                    •     Timber-based businesses are increasingly sought after
                            recurring revenues
                                                                                                       •     Flexible business models that can quickly adapt to changing
                       •    Businesses with exposure to the growing off-site                                 supply chain dynamics
                            construction market
                                                                                                       •     Industry recognised brand names.
                       •    “Smart” product and/or process, including digital enablers
                            such as BIM
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES                       10

                                                   ...AND VALUATIONS CONTINUE TO INCREASE
                                                             2018 SEES UK AVERAGE TRANSACTION MULTIPLE RISE TO 7.1X EV/EBITDA

COMPANY VALUATIONS HAVE STEADILY INCREASED
Average EV/EBITDA multiples for sector transactions in the UK                                                        It should be noted that this average includes a number of plant
have gradually risen from 5.7x in 2011 to 7.1x in 2018 indicating                                                    hire companies which trade at between 5x and 6x EBITDA,
increasing attractiveness of the sector overall.                                                                     given the higher CAPEX element of business models, therefore
EV/EBITDA multiples average between 5.8x for plant hire, in                                                          supressing the sector average. Overall, the multiples mirror
line with valuations for capital-intensive businesses and 7.1x for                                                   the upward trajectory seen in private company valuations over
building materials, reflecting the premium for scarce and highly                                                     recent years.
sought-after raw materials. A multiple of 7.1x has also been the
                                                                                                                     Quoted company EV/EBITDA multiples remain at considerably
average valuation in the fast-developing security & access sector.
                                                                                                                     higher levels than multiples achieved in unquoted transactions.
UK quoted company historic EV/EBITDA multiples have been                                                             For listed acquirers with a strong current trading multiple,
consistently above 8x since mid-2012, and rose to a high point                                                       this provides an opportunity to obtain multiple arbitrage on
of 11.8x in 2014. Averaging 8.5x at the end of 2018, the average                                                     acquisitions, and more easily gain shareholder approval for
climbed higher to 9.1x early in 2019.                                                                                ambitious buys. Private equity players may also be able to
                                                                                                                     achieve multiple arbitrage on exit from businesses in the sector,
                                                                                                                     which adds to a compelling investment thesis.

TRANSACTION VOLUMES AND VALUATIONS BY SECTOR

                                                   Average EV/EBITDA multiple, 2012-2018
                                                      7.1x         6.3x        6.0x          5.6x        6.7x       6.4x        6.5x          7.1x           6.6x             5.8x         6.8x

                                              50

                                              45
Number of Transactions / EV/EBITDA Multiple

                                                                                                                                 2012      2013      2014    2015      2016       2017    2018
                                              40

                                              35

                                              30

                                              25

                                              20

                                              15

                                              10

                                               5

                                               0
                                                   Building Roof, Cladding HVAC            Electrics    Windows   Interiors     Kitchen     Security        Flooring          Plant      Merchant /
                                                   Materials & Insulation & Plumbing       & Lighting   & Doors   & Surface   & Bathroom    & Access        & Carpet          Hire       Distributors
                                                                                                                  Finishing
Source: Market IQ, mergermarket, Companies House, BDO Analysis

                                              AVERAGE EV/EBITDA                                                       MULTIPLES AND
                                                                                                                      TRANSACTION                 INCREASE
                                                                          7.1x (6.9X IN 2017)
                                              PAID IN 2018 WAS
                                                                                                                      VOLUMES                     ACROSS ALL SECTORS
                                                                                                                      CONTINUE TO
11   BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

SUB-SECTOR KEY THEMES
AND DEAL HIGHLIGHTS

                                            20
                       14                   MERCHANT/
          ROOF, CLADDING                    DISTRIBUTOR
            & INSULATION

                                                                   19
                                                                   PLANT HIRE
               13
        BUILDING
       MATERIALS                                                 18
                                                                 FLOORING &
                 14                                              CARPET
           HEATING,
  VENTILATION & AIR
     CONDITIONING
 (HVAC) & PLUMBING
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES   12

                                                           18
                                                           SECURITY
                                                           & ACCESS
        17
 KITCHEN &
BATHROOM

        17
INTERIORS
& SURFACE
FINISHING                                                  15
                                                           ELECTRICS
                                                           & LIGHTING

      16
WINDOWS
 & DOORS
13      BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

BUILDING MATERIALS

     SECTOR COMMENTARY                        Following a rise of over 50% in building materials transactions in
                                              2017, volumes in 2018 were sustained as corporates and private
     Highly fragmented sector with
     further consolidation likely in the
                                              equity continue to focus on increasing control of the vital flow of
     mid-market.                              raw materials into the supply chain.
     Disposals from larger corporations
     possible due to competition issues,      2018 DEAL HIGHLIGHTS
     particularly in aggregates market.       Aggregates                                      Timber
                                              Ibstock disposed of Glen-Gery, America’s        Corporate investments in the year
     Larger companies control a
                                              fourth largest brickmaker to Brickworks         included the acquisition of Continental
     significant portion of the market and
                                              for $110m, and is now refocusing on its         Wood by Swedish business Bergs Timber
     have the benefits of economies of
                                              core UK markets.                                for £60m, and the acquisitions of SIG’s
     scale. This is often not available to
                                                                                              timber modular building business by
     smaller companies whose margins          Breedon Group made three acquisitions           Urban Splash. Donaldson Timber
     are tightening. They are also in         in the year, including a Scottish quarry,       Engineering acquired Cambridge Roof
     a better position to pass on the         a mini-mix concrete operator in the             Truss, and Premier Forest Products
     increasing costs of labour inflation.    Midlands, and Irish construction materials      acquired Merlwood Timber, both deals
     Businesses operating in the UK           business Lagan, which it acquired for           serving to extend geographical reach.
     timber market are highly sought after    £455m. The combination with Lagan
                                              provides Breedon with an enhanced               Private equity are alive to the strong
     and attracting robust valuations.                                                        growth prospects in timber. Cairngorm
                                              platform for further organic growth and
     The departure of skilled European        bolt-on acquisitions.                           continued its march in the sector, adding
     bricklayers as a consequence of                                                          Arnold Laver, Rembrand Timber and North
     Brexit, and the lack of local skills                                                     Yorkshire Timber during the year. Builders
     to replace them, could mean that                                                         merchant Huws Gray received investment
     construction companies will look                                                         from Inflexion during the year and went
     increasingly to alternatives, such as                                                    on to acquire five businesses, a number of
     timber. Widespread in Scotland as                                                        which specialise in timber.
     a building material, timber is now
     becoming increasingly popular in
     England. Sustainable and versatile,
     timber lends itself to the advancing
     off-site construction market and                                                                               45
     modular building methods, and                                                                                  40
     will support the forecast growth in
                                                                                           Number of transactions

                                                                                                                    35
     housing starts.                                                                                                30
                                                                                                                    25
                                                                                                                    20
     AVERAGE EV/EBITDA                                                                                              15

     MULTIPLE                                                                                                       10

     2012-2018 7.1x
                                                                                                                    5
                                                                                                                    0
                                                                                                                         2012 2013 2014 2015 2016 2017 2018
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES                            14

ROOF, CLADDING & INSULATION

 SECTOR COMMENTARY                               Growth prospects in the UK housebuilding sector, alongside
                                                 environmental and regulatory drivers are creating an attractive
 The sector is being increasingly driven
 by off-site manufacturing and speed
                                                 investment thesis for businesses operating in the Roof, Cladding
 of delivery. Companies with such                & Insulation market.
 capabilities are winning more tenders,
 in part due to reducing the risk profile        2018 DEAL HIGHLIGHTS
 of construction companies.
                                                 US-based GCP Applied Technologies                  Solutions. €20m turnover RoofSpace
 International businesses have been              acquired RIW for $30m, a supplier of               was sold to Saint Gobain in a deal which
 completing cross-border acquisitions            waterproofing products including liquid,           will accelerate its involvement in off-site
 to increase their foothold in the UK            sheet and cement systems alongside                 manufacturing and complement existing
 market, underlining confidence in the           structural drainage.                               businesses including Pasquill roof-trusses,
 long term prospects of the UK roofing           CUPA Group, the Spanish company                    Scotframe timber-frame houses and Saint-
 materials market.                               engaged in the production and distribution         Gobain steel-frame systems.
 A number of corporates have been                of roofing slate acquired Burton Roofing
 carving out non-core subsidiaries as            merchants and Brian Gow Roofing                                         16

 they seek to reshape their businesses.          Warehouse, which consolidates its position                              14
                                                 in the UK market, adding £60m turnover.

                                                                                                Number of transactions
                                                                                                                         12
                                                 Alumasc sold its Façades unit to Northern-                              10
                                                 Ireland based Kilwaughter Minerals,
                                                                                                                         8
 AVERAGE EV/EBITDA                               which is the UK’s largest independent
                                                 manufacturer of silicone render.                                        6
 MULTIPLE
 2012-2018 6.3x
                                                 Alongside other disposals SIG sold the                                  4
                                                 assets of Proteus, a façade panel systems                               2
                                                 manufacturing business and also UK offsite                              0
                                                 manufacturing business RoofSpace                                             2012 2013 2014 2015 2016 2017 2018

HVAC & PLUMBING

 SECTOR COMMENTARY                               HVAC & Plumbing has been the most active sector for M&A deals
                                                 since 2008, as buyers have sought to gain exposure to a market
 Smart technology has been widely
 adopted by the HVAC sector and
                                                 characterised by regulatory change and technological developments.
 continues to evolve fast.
 Services to the HVAC sector are                 2018 DEAL HIGHLIGHTS
 fast-growing, with technology-driven            Volution continued its drive into                  Reliance to expand market presence
 diagnostics driving strong recurring            international markets with four                    strongly in Europe.
 revenue streams.                                acquisitions: Simx, a New-Zealand-based            Ferguson, the specialist distributor of
 The European market is more evolved             supplier of residential ventilation products       plumbing and heating products has been
 than the UK and UK based companies              for £37.8m; Finland-based Pamon, a                 exiting a number of geographies, selling its
 often look overseas for acquisitions.           manufacturer of Mechanical Ventilation             Nordic business for €1bn and most recently
                                                 with Heat Recovery products for £10.2m;            its Dutch subsidiary.
 The online model in the Plumbing
                                                 Denmark-based Air Connection for £2.8m;
 sector is still in its infancy but is an area
                                                 Dutch specialist distributor AirFan.
 with significant growth opportunities.
                                                 Volution aims to continue growing by
 Larger companies still dominate the
                                                 acquiring value-adding businesses in new
 market and further consolidation in
                                                 and existing markets and geographies
 the sector is likely from businesses
                                                 across the residential ventilation market,
 looking to fill-in certain geographies or
                                                 and where appropriate, in the commercial                                50
 from companies looking to build their
                                                 ventilation market.                                                     45
 presence in the online market.
                                                 Reliance Worldwide acquired UK global                                   40
                                                                                                Number of transactions

                                                 fittings manufacturer John Guest, which                                 35
                                                 specialises in plastic PTC (push to connect)                            30
                                                 fittings. Australian-based Reliance, which                              25
                                                 is the leading manufacturer in the world of                             20
 AVERAGE EV/EBITDA                               brass PTC plumbing fittings paid £687.5m                                15

 MULTIPLE                                        for John Guest, representing 10.3x EBITDA                               10

 2012-2018 6.0x
                                                 after synergies. The combined businesses                                 5
                                                 have a strong strategic fit and will allow                               0
                                                                                                                              2012 2013 2014 2015 2016 2017 2018
15      BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

ELECTRICS & LIGHTING

     SECTOR COMMENTARY                             The UK lighting market is developing fast and maintaining its
                                                   position within intelligent and connected built infrastructure. There
     The UK Electrics & Lighting sector is
     moving towards a European based model
                                                   is high demand for new innovations and energy efficient designs
     of online sales direct to the end-user. The   which are sustaining growth and increasing levels of M&A activity.
     European market has a more advanced
     and mature market for lighting and            2018 DEAL HIGHLIGHTS
     complementary products.
                                                   Baird Capital acquired a majority interest       BLE Lighting & Power is a leading
     Faces strong foreign currency pressures       in Collingwood Lighting, a leading               name in the provision of emergency
     due to imports of final products & parts      designer and supplier of residential,            lighting products & solutions and
     from the Far East. Companies with a           commercial and exterior luminaires into          emergency power systems, supplying to
     strong brand and customer relationships       the professional and new-build markets           a broad customer base of wholesalers,
     may be able to pass on costs at the           in the UK and France. The investment             contractors and end users.
     expense of smaller competitors.               will support the business as it drives
     Future trends will include ongoing            innovation and growth.
     adoption of LEDs in the UK market, and        Red Arrow Trading Group, an importer
     some eventual commodisation in the            and distributor of lighting and electrical
     market, alongside price competition from      equipment to the electrical wholesale
     online channels.                              industry acquired BLE Lighting & Power
     The relatively low average valuation          from Lowe & Fletcher, which had
     for Electrics & Lighting reflects a           identified it as a non-core subsidiary.
     high proportion of targets operating
     distribution-only business models.                                                                                  30
     Companies with IP, offering design-led
                                                                                                                         25
     solutions are highly sought after and can
                                                                                                Number of transactions

     command much higher valuations.                                                                                     20

                                                                                                                         15

     AVERAGE EV/EBITDA                                                                                                   10

     MULTIPLE                                                                                                            5

     2012-2018 5.6x                                                                                                      0
                                                                                                                              2012 2013 2014 2015 2016 2017 2018
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES                            16

WINDOWS & DOORS

 SECTOR COMMENTARY                       Prospects remain healthy in the Windows and Doors sector, which is
                                         underpinned by strong demand from the housebuilding market. This,
 A shifting preference towards highly
 efficient products such as aluminium.
                                         alongside product innovations and evolving consumer preference, is
 Innovations in hardware components      driving increasing levels of M&A activity and robust valuations.
 and evolving aesthetics spurring
 consumer demand.                        2018 DEAL HIGHLIGHTS                         Strong interest from private equity, with
 Off-site fabrication is impacting       Tyman, a leading supplier of engineered      Maven, CoBe Capital, Elaghmore Partners
 the Windows & Doors sector and          components to the door & window              and Tosca Debt Capital all supporting
 is an area of growth for a number       industry acquired three businesses in        MBOs in the Windows & Doors sector
 of companies.                           the year: Ikon Hardware, which designs,      during the year.
 Large, international companies          develops and distributes architectural       Businesses also came out of investor
 continue to have a strong interest      hardware products; Zoo Hardware, a           portfolios, for example Northedge-backed
 in the UK market due to its strength    designer and supplier of architectural       DW3 Product was sold to Masonite in a
 and the imbalance between supply        hardware for £19m, representing an           £70m deal.
 and demand of new housing.              EBITDA multiple of 6.8x; US-based
                                         Ashland Hardware for $101m, which
                                         brings to the Group an additional
                                         engineered hardware product offering
                                         for the North American residential
                                         window and door market. This sizeable
                                         deal will expand Tyman’s product
                                         offering in the hung/sliding window                                 25
                                         market which represents approximately
                                         70% of all window openings in the US       Number of transactions   20
                                         residential market.
                                                                                                             15

                                                                                                             10
 AVERAGE EV/EBITDA
 MULTIPLE                                                                                                    5

 2012-2018 6.7x                                                                                              0
                                                                                                                  2012 2013 2014 2015 2016 201 7 201 8
17      BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

INTERIORS & SURFACE FINISHING

     SECTOR COMMENTARY                          The fashion-driven interiors market continues to attract interest
                                                from a wide range of buyers and experienced an active year for
     Highly competitive sector where the
     B2B and B2C models are converging.
                                                deals in 2018.
     Price transparency from the B2C
     model presents challenges and              2018 DEAL HIGHLIGHTS
     therefore companies are trying to          Fred Williamson & Sons, one of the North         AkzoNobel confirmed its commitment
     diversify vertically. Increasing routes    East’s best known and long-standing              to the Chinese market with the full
     to market through specification is         decorating supplies and interior design          acquisition of its Joint Venture business
     becoming more popular.                     business was acquired by South-East              with UK-based Swire Industrial. The
     Design/finishing sector is growing in      based C Brewer & Sons, the largest               business manufactures and distributes
     popularity and an attractive area for      independent supplier of decorating               decorative paints in China, primarily
     M&A growth as it allows companies          materials in the country. The acquisition        under the Dulux brand, and is aligned with
     to provide an additional service/          provides entry to the North East market          AkzoNobel’s ongoing transformation into
     product to the same customer. This         and supports ongoing evolution of                a focused paints and coatings company.
     has formed a key basis of M&A              services to meet the contemporary
     rationale in the past year.                requirements of customers.
                                                                                                                       30

                                                                                                                       25

                                                                                              Number of transactions
                                                                                                                       20

                                                                                                                       15

     AVERAGE EV/EBITDA                                                                                                 10

     MULTIPLE
     2012-2018 6.4x
                                                                                                                       5

                                                                                                                       0
                                                                                                                            2012 2013 2014 2015 2016 2017 201 8

KITCHEN & BATHROOM

     SECTOR COMMENTARY                          Unlike other sectors, Kitchens & Bathrooms saw a decline in
                                                the number of UK transactions in 2018, however this follows an
     Historically, companies in this sector
     have tended to focus their offerings
                                                exceptional year of deals in 2017. Businesses operating in the
     on either high-end or low-end.             Kitchen & Bathroom sector continue to develop brand portfolios,
     Companies are now increasingly             aligning to consumer tastes and the recovering RMI market.
     looking to serve more than one area of
     the market as a way of growing sales.
                                                2018 DEAL HIGHLIGHTS
     The online market is becoming
     increasingly important in this sector,     PE-backed businesses have been active            C P Hart, the UK’s leading premium
     as customers widen their outlook from      in 2018, including Promethean-backed             bathroom retailer acquired European
     traditional channels.                      Brickability, which had a busy year              Bathrooms, adding showrooms in
                                                completing 7 deals, amongst them                 Windsor and Amersham to its expanding
     RMI is a key driver and recent data        two providers of luxury towel rails              network. The business continues to seek
     highlights expects levels in the private   and designer radiators: Towelrads and            opportunities to further grow its reach in
     housing sector to be sustained this        Hamilton Heating.                                the niche premium bathroom segment.
     year and to grow by 2% in 2020.
                                                Lonsdale Capital Partners-backed Mobility
                                                Group acquired Cassellie, a designer and                               20
                                                importer of bathroom products. The                                     18
                                                acquisition is part of a wider strategy                                16
                                                                                              Number of transactions

                                                to create a bathroom supplier of                                       14
                                                significant scale. Since Lonsdale’s initial                            12
                                                investment in 2016, the Mobility Group                                 10
                                                has experienced five-fold growth, both
     AVERAGE EV/EBITDA                          organically and through acquisition, and
                                                                                                                       8
                                                                                                                       6
     MULTIPLE                                   will achieve revenues of £60m this year.

     2012-2018 6.5x
                                                                                                                       4
                                                                                                                       2
                                                                                                                       0
                                                                                                                            2012 2013 2014 2015 2016 2017 201 8
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES                               18

SECURITY & ACCESS

 SECTOR COMMENTARY                        Security & Access continues to be a sought-after sector, with
                                          technological advancements and regulatory change driving interest
 Similar to the HVAC sector with
 technology acting as a key driver
                                          in advanced businesses, particularly manufacturers with strong IP.
 of growth.
 Products with innovative features        2018 DEAL HIGHLIGHTS
 such as sensors are experiencing         Lock manufacturer Assa Abloy was                   Further deals in fire protection include:
 high levels of growth, alongside         very active in the year, completing 13             A&F Sprinklers’ acquisition of Hall Fire
 capabilities that integrate with other   acquisitions, including Exidor, Lorient,           Protection from administration to create
 building management systems.             Dale Hardware and Excel Architectural              one of the country’s largest independently-
                                          Hardware in the UK. These deals                    owned fire sprinkler companies; ADT’s
 Customers understand the                 strengthen the Group’s position through            acquisition of Electronic Security Systems
 importance of having adequate            adding complementary products and                  and Fire Protection; Premier Technical
 security and access products and         solutions. Lorient has a strong position in        Services Group’s acquisition of M&P Fire
 therefore are keen to consider           the fire protection market, extending the          Protection, recently complemented with
 advances that tighten security.          Group’s door sealing portfolio.                    Trinity Fire & Security Systems for £10.8m.
                                          Halma continued to build its fire protection
                                          portfolio with the acquisition of Limotec,                                30
                                          a leading fire control panel designer and                                 25
                                          manufacturer in the Belgian market.

                                                                                           Number of transactions
                                                                                                                    20

                                                                                                                    15

 AVERAGE EV/EBITDA                                                                                                  10

 MULTIPLE                                                                                                            5

 2012-2018 7.1x                                                                                                      0
                                                                                                                         2012 2013 2014 2015 2016 201 7 201 8

FLOORING & CARPET

 SECTOR COMMENTARY                        The Flooring & Carpet sector is seeing deals that broaden routes to
                                          market, diversify product portfolios and align to emerging consumer
 Consumer tastes, RMI and
 construction activity are key drivers
                                          trends. The sector has seen rising levels of interest for M&A over
 of the sector.                           recent years.
 The specification market has
 increased in competitiveness which       2018 DEAL HIGHLIGHTS                               based in the Netherlands which increases
 creates the need to explore further      Victoria stayed true to its intention to focus     the weight of the Group in the residential
 routes to market.                        only on larger deals, acquiring Ceramica           and commercial sectors.
 Faces labour challenges, especially      Saloni for €97m, a European manufacturer           Shaw Industries, the largest carpet tile
 with installation. Companies that do     of mid to high-end ceramic and porcelain           manufacturer in North America acquired
 not outsource installation are better    tiles, aimed primarily at new construction         Scotland based Sanquhar Tile Services. The
 placed to overcome this challenge.       or commercial offices. Victoria, which             combination positions Shaw as a global
                                          specialises in floor carpets, aims to double       carpet tile provider.
                                          its turnover to £1bn by 2020, and would
                                          next like to enter the market for luxury
                                          vinyl tiles.
                                                                                                                    20
                                          Headlam, Europe’s largest distributor of                                  18
                                          floorcoverings acquired 5 further businesses                              16
                                                                                           Number of transactions

                                          in 2018: Garrod Bros, Ashmount and                                        14
                                          Rackhams all consolidating the Group’s                                    12
                                          position within the Greater London                                        10
                                          area; CECO Flooring based near Belfast,                                    8
 AVERAGE EV/EBITDA                        which will expand Headlam’s presence                                       6

 MULTIPLE                                 in North Ireland as well as increasing its                                 4

 2012-2018 6.6x
                                          specification-led sales channel; Dersimo                                   2
                                                                                                                     0
                                                                                                                         2012 2013 2014 2015 2016 201 7 201 8
19      BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

PLANT HIRE

     SECTOR COMMENTARY                         The Plant Hire sector is experiencing strong demand from the
                                               infrastructure market, and has seen consolidation continue apace,
     Private equity have long been
     attracted to the plant, equipment         with high interest from private equity and overseas players.
     & tool hire sector, with its asset-
     backed profile providing investment       2018 DEAL HIGHLIGHTS
     security and EBITDA profile ensuring
     attractive returns.                       BGF provided £4.7m investment to                             Loxam as a market leader for working at
                                               heavy equipment rentals business                             height solutions.
     International companies have a
     strong interest in the sector, much of    Plantforce Rentals.
                                                                                                            Dutch business Boels Rental acquired UK
     which is underpinned by the volume        Elaghmore Partners acquired McPhee Bros,                     business Artisan Hire Centre and sister
     and value of infrastructure projects.     a provider of truck-mounted concrete                         company SAS which operate in the south-
     New emissions legislation expected        mixer units.                                                 west of England. These additions bring the
     this year could force operators to
     seek investment to upgrade their          Recent secondary buy-outs include: Alinda                    total number of Boels branches in the UK to
     equipment fleet.                          Capital’s acquisition of infrastructure-                     38, building on the acquisitions of Already
                                               focused Kelling Group from Elysian                           Hire earlier in the year and Supply UK Hire
     Customers are increasingly
     demanding more flexible rental            Capital; The Carlyle Group’s acquisition of                  Shops in 2017. Boels, which had revenue
     options and service, which is spurring    EnerMech from Lime Rock Partners; Ashtead                    of €445m last year has set its sights on
     the emergence of new business             Technology’s buyout by a consortium of                       reaching €1bn within a few years.
     models, including same-day delivery       investors from Phoenix.
     and brokerage.                                                                                                   25
     Telematics are increasingly used in       HSS Hire sold UK Platforms to Loxam
     the sector to drive benefits, including   for £60.5m, which, combined with its          Number of transactions   20
     operational improvements and              Nationwide Hire business will position
     increased flexibility.                                                                                           15

                                                                                                                      10
     AVERAGE EV/EBITDA
     MULTIPLE                                                                                                         5

     2012-2018 5.8x                                                                                                   0
                                                                                                                           2012 2013 2014 2015 2016 2017 201 8
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES                             20

MERCHANTS / DISTRIBUTORS

 SECTOR COMMENTARY                        In the UK, the merchant market remains highly fragmented, and a
                                          number of businesses have been resolutely consolidating. We expect
 High levels of consolidation continue
 in the sector. Regional merchants
                                          this to be an ongoing theme.
 with less than ten branches are of
 particular interest.                     2018 DEAL HIGHLIGHTS
 A number of large businesses in the      Saint-Gobain, SIG, Travis Perkins, Ferguson      presence, making it the UK’s largest
 sector have come under margin            and CRH have all progressed carve-outs           independent builders merchants. Like
 pressure in recent years and have        and disposals of non-core businesses, with       Huws Gray, Ridgeons has a strong focus
 initiated strategic reviews to realign   more expected going forwards.                    on the growing repair, improvement and
 their businesses.                                                                         maintenance segment, as well as a large
                                          Huws Gray received investment from
 Challenges come from the migration       Inflexion in April 2018 and went on              and diversified customer base of over
 to online sales, however the UK has      to acquire 7 business in six months.             16,000 clients.
 strong loyalty to a branch-based         These deals include: Penrith Building
 operating model.                         Supplies, PH Timber, Armstrongs Builders
                                          Merchants and Southport Timber, all                                    18
                                          based in the North West; Audley Builders                               16
                                          Merchants, Wheelers Timber and Builders

                                                                                        Number of transactions
                                                                                                                 14
                                          Merchants based in the Midlands.                                       12
                                          In October, Huws Gray acquired Ridgeons,                               10
                                          an independently owned timber and                                      8
 AVERAGE EV/EBITDA                        builders merchants trading from over                                   6

 MULTIPLE                                 40 mixed branches in East Anglia.                                      4

 2012-2018 6.8x
                                          The transformational acquisition will                                  2
                                          significantly increase Huws Gray’s store                               0
                                          base and broaden its national                                               2012 2013 2014 2015 2016 201 7 201 8
21                             BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

UK CONSTRUCTION FORECASTS
INFRASTRUCTURE PROJECTS SUSTAIN CONSTRUCTION OUTPUT

TOTAL CONSTRUCTION OUTPUT BY SECTOR

                               180,000                                                                                                                              10%
                               160,000                                                                                                                              8%

                                                                                                                                                                          Total output, yoy change %
     Construction output £'m

                               140,000                                                                                                                              6%
                                120,000                                                                                                                             4%
                               100,000                                                                                                                              2%
                                80,000                                                                                                                              0%
                                60,000                                                                                                                              -2%
                                40,000                                                                                                                              -4%
                                20,000                                                                                                                              -6%
                                     0                                                                                                                              -8%
                                          2012           2013       2014          2015          2016             2017   2018E      2019F          2020P

                                             Private housing                               Public housing                            Public non-housing
                                             Industrial                                    Infrastructure                            Commercial
                                             Private housing RM&I                          Public housing RM&I                       Private other R&M
                                             Public other R&M                              Infrastructure R&M                        Construction output % change

Source: CPA

Mixed outlook for the construction sector with infrastructure activity being a key driver
UK construction output remained                                            Investment Fund, which the Government            RM&I market is expected to recover, with
resilient in 2018 in spite of rising political                             has increased from £31bn to £37bn,               2% growth projected in 2020, which will
uncertainty, with particularly strong growth                               and extended by one year to 2023/24.             drive demand in many underlying Building
in the North West, Midlands and Yorkshire.                                 Foreign investors see infrastructure as an       Products & Services sectors.
5% growth in private housing was enough                                    attractive prospect, especially following the
to counter a 2% decline in public housing,                                 weakening of Sterling.                           The subdued outlook for growth in other
leading to 3.9% increase in housing output                                                                                  sub-sectors comes against a backdrop of
in the year. Growth in other sectors                                       Output in the private housing sector             sustained year-on-year growth to 2017.
was hampered by slower UK economic                                         reached a record high in Q3 2017 and is          In the commercial sector output rose
growth, and rising uncertainty around the                                  expected to rise by 2% in 2019 and 1%            by 7.6% in 2016 and by a further 7.8%
Brexit Withdrawal Agreement. This has                                      in 2020, driven by new builds outside            in 2017. As expected, the uncertainty
particularly impacted prime residential                                    London and the incentive of the Help to          following the EU Referendum means that
apartments in London, commercial offices                                   Buy scheme. Help to Buy, which accounts          major new investments have become
and industrial factories. But overall, 2018                                for just under a third of private house          increasingly difficult to justify, and this
output was sustained at the high levels                                    building starts, has been extended to 2023       decline in new orders is now translating
seen in 2017.                                                              in England (2021 in Wales and Scotland),         to lower commercial output. There are
                                                                           and is expected to maintain demand for           however bright spots in the forecasts,
Infrastructure activity is expected to be                                  new build housing. The Government has set        including pent-up demand for office
the key driver of growth over the next                                     an annual housebuilding target of 300,000        space in Manchester and major office and
two years, as the Thames Tideway Tunnel                                    new homes a year by the mid-2020s, which         mixed-use developments in the pipeline,
project continues, work on HS2 accelerates                                 has resulted in a raft of policy measures.       including 12 large developments planned
and main work at Hinkley Point C gets                                      The £5.5bn Housing Infrastructure Fund           above Crossrail stations.
underway. By the end of the forecast                                       was topped up with a further £500m in the
period, infrastructure output is projected                                 2018 Budget, and the Chancellor unveiled
to be £23.2bn, 18.2% higher than in 2017,                                  a new £3bn scheme in his spring statement
and the highest level on record. This is                                   to fund the building of 30,000 affordable
supported by the National Productivity                                     homes. Alongside this, the private housing
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES    22

                                     Data referenced from the CPA's Construction Industry Forecasts. The CPA is the leading voice to
                                     promote and campaign for construction product manufacturers and suppliers.

PRIVATE AND PUBLIC STARTS / COMPLETIONS

   200,000

   160,000

   120,000

     80,000

     40,000

              -
                  2012        2013          2014             2015          2016         2017             2018E   2019F       2020P

                                                   Total housing starts              Total housing completions
Source: CPA

    CONSTRUCTION OUTPUT                            PRIVATE HOUSING                                      INFRASTRUCTURE
    TO REMAIN BROADLY FLAT                         STARTS TO RISE                                       CONSTRUCTION TO RISE
    IN 2019 AND RISE

     1.6%           IN 2020                        2.0% IN1.0%2019IN AND
                                                                     2020                              8.8% IN7.7%2019IN 2020
                                                                                                                         AND
23                 BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

OUTLOOK FROM EUROCONSTRUCT
CONSTRUCTION OUTPUT TO GROW BY 2% IN 2019 AND 1.6% IN 2020

INFRASTRUCTURE TO DRIVE GROWTH ACROSS EUROPE
Thanks to simultaneous construction                      some countries. In the short term, supply
                                                                                                                                            EUROCONSTRUCT IS
                                                                                                                                            EUROPE'S LEADING
output growth across the 19 Euroconstruct                and policy drivers have a stronger impact                                          CONSTRUCTION MARKET
countries, 2017 recorded a growth peak of                on the residential markets.                                                        FORECASTING NETWORK
4.1% (volume). The construction market
is expected to grow by 2.8% in 2018 and                  As a whole, non-residential construction
slow down at a yearly average rate of                    output (new and renovation) is growing at
1.6% (in volume) over the forecast period                a pace of 1.5% per year across 14 growing
(2019-2021) supported by smoothing                       countries over the 2019-2021 period. But it
but still positive GDP evolution. 2021                   should be noted that public buildings and
construction market volumes are expected                 offices are reversing the non-residential
to be 15% behind 2007’s peak for the EC19                market in the UK and Germany. This is
countries, however when Ireland, Spain and               mainly due to public budget allocation and
Portugal are excluded from the analysis, the             anticipated effects of Brexit. An abrupt halt
sum of output levels across the remaining                in activity is expected in the offices sector                                      Euroconstruct, created in 1974 by 5
countries show recovery.                                 in the UK.                                                                         national establishments representing
                                                                                                                                            the construction sector (BIPE (France),
In the very short term, confidence for                   Civil engineering is expected to become the                                        CSTC (Belgium), IFO (Germany), EIB
households is reaching a peak in 2018                    new driving force during the forecast period                                       (The Netherlands) and NEDO (United
fuelling the new-residential sector.                     with annual growth rates between 2.5 and                                           Kingdom)), has today members from
Collective housing progressively overrides               5% in volume. Civil engineering will benefit                                       19 European countries, representing
individual dwellings with 58% of collective              from European Commission infrastructure’s                                          almost the whole European zone.
vs. 42% of individual completions                        plans and from national plans, especially
                                                         highways and rail renovation.                                                      Euroconstruct’s members, whose
expected in 2021. The population across                                                                                                     counselling services enable them
Euroconstruct countries is expected to                                                                                                      to remain in constant contact
continue growing over the 3 next years                   In summary, although the outlook for
                                                         construction activity is mixed across                                              with makers of national policy and
but at a slower pace than in the past.                                                                                                      private companies, are experts on
Despite this dynamic, household growth                   the UK and Europe as a whole, there are
                                                         many bright spots in the forecasts, which                                          public policies, company strategy
does not necessarily lead to housing                                                                                                        and the main trends influencing the
completions growth, leading to an                        alongside the other drivers discussed in this
                                                         report, will continue to underpin robust                                           construction market.
imbalance between supply and demand in
                                                         levels of M&A activity.                                                            Euroconstruct provides national-
                                                                                                                                            level analysis and forecasts on the
                                                                                                                                            construction sector.

EC19 - TOTAL CONSTRUCTION OUTPUT AND GDP (YOY CHANGE %)
                                                                                                                                                                 PASCAL MARLIER
                                                                                                                                                             Le Bipe – BDO ADVISORY
                   3.0                                                                             4.5
                                                                                                         Construction output yoy change %

                                                                                                   4.0
                   2.5                                                                             3.5
GDP yoy change %

                   2.0                                                                             3.0
                                                                                                   2.5
                   1.5
                                                                                                   2.0
                   1.0                                                                             1.5
                                                                                                   1.0
                   0.5
                                                                                                   0.5
                   0.0                                                                             0.0
                          2015      2016      2017      2018         2019          2020   2021
                                            GDP            Total construction output
BDO MERGERS & ACQUISITIONS | BUILDING PRODUCTS & SERVICES   24
25    BUILDING PRODUCTS & SERVICES | BDO MERGERS & ACQUISITIONS

SECTOR THEMES
FACTORS DRIVING INVESTOR INTEREST IN BUILDING PRODUCTS & SERVICES

2018 was a year in which Construction hit the headlines for the wrong reasons. The collapse of
Carillion sent shockwaves through the sector and shed a spotlight on issues to be overcome if
necessary structural change is going to take place.
The skills shortage, the imbalance of power in the supply chain, and thin profit margins are all piling
on pressure on businesses operating in the sector, but innovations and opportunities do exist to
overcome these, to spur productivity, and position the sector to deliver the huge amount of building
required. These factors continue to drive attractive investments in the sector.

     TECHNOLOGY
     The Building Products & Services sector has been slow to
     embrace innovation and change due to both cultural and       OFF-SITE CONSTRUCTION
     commercial pressures. There are a number of significant
     opportunities that are driving benefits to improve           The Government is pushing offsite construction as
     productivity, including Building Information Modelling       a means of tackling the £15bn productivity gap in
     (BIM), cloud computing, the Internet of Things (IoT),        construction.
     automation and online distribution channels.
                                                                  It is well-known that the residual value of a building is
     Awareness and adoption of BIM are rising steadily. NBS       little more than half the cost of its construction: around
     estimate that adoption has risen from 10% in 2011 to         30% of building materials and 40% of working hours are
     over 70% in 2018. The creation of identifiers for building   wasted. The solution is not squeezing the supply chain,
     products has been seen as the missing link in BIM, and a     nor can there be compromise on the performance of the
     key area that must be addressed to drive value from the      assets, networks and systems. So efficiencies can only be
     process. The CPA came together with the NBS and CBI          achieved through a fundamental shift in process, where
     to research and develop an Identifier for construction       construction becomes much more like manufacturing,
     products to feed into BIM, which led to the development      and the use of raw materials is minimised, as is
     of Digital Object Identifiers (DOIs). These have been        processing and handling. This produces a new way
     successfully piloted and are expected to bring significant   of working, where integrated solutions use standard
     benefits to the building lifecycle.                          components configured using standard processes to give
                                                                  bespoke assets.
     The growing potential of data analytics, Artificial
     Intelligence (AI), machine-learning, IoT and integration     While this all makes excellent sense, the reality is that the
     with GIS platforms will broaden the possibilities beyond     transition to off-site construction requires large upfront
     BIM towards an increasingly diverse 21st century digital     investment, is currently suitable for standardised projects
     built environment where infrastructure, buildings, digital   only and requires widespread participation.
     media and systems must all converge if we are going to
                                                                  For this reason the Government is putting the weight
     create smarter cities and communities.
                                                                  of its construction portfolio and its purchasing power
                                                                  behind the drive for innovation. Five key government
                                                                  organisations will adopt ‘a presumption in favour of
                                                                  offsite construction’ by 2019, which is expected to renew
                                                                  impetus.
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