Construction Industry developments are driven by players reinforcing their competitiveness, by growing and expanding their product and service offerings, often through mergers and acquisitions. Such structural change is increasingly driven by international players, often with private equity firms as owners.
Entire value chain
With experience gained from transactions in all parts of the construction industry, we focus on the entire value chain relating to operations, maintenance and construction of infrastructure and buildings. The businesses covered include engineering firms, architects, construction material manufacturers, wholesalers/retailers, contractors, electricians, as well as operations and maintenance organisations.
The Stratema Construction team includes people with extensive operational experience from senior positions in the industry, as well as comprehensive M&A experience from the industry. We maintain strong relations with Nordic and international financial buyers and know a lot of those who own and operate companies in the industry. We therefore identify what companies are a good fit for each other, and how these will jointly strengthen their market position.
Construction industry niches – trends and drivers
Ground works contractors
Steep infrastructure investment growth in Norway and Sweden has increased ground works demand, which will remain high for years to come. Moreover, considerable maintenance/replacement needs have been identified in the water and sewage networks of the Nordic countries, where much of the infrastructure was established after World War II and is now coming to the end of its lifespan. Construction machinery is becoming ever more sophisticated, with GPS and laser guidance, thereby entailing larger investments, but improved efficiency. Ground works contractors have traditionally owned the machinery themselves. We are now seeing the emergence of construction machinery hire businesses. Efficient no-dig methods for laying pipes (drilling/strutting) or cables (trenching/ploughing) are becoming more widespread.
The construction of new residential buildings has fluctuated somewhat in recent years, with a steep increase over the period 2015 – 2017 and a decline during 2017 – 2020. Slightly weaker development is anticipated for the next few years. The construction of new non-residential buildings (commercial buildings and public buildings) has remained fairly stable over the last few years, and little overall change is anticipated. Rehabilitation, conversion and extension works represent a steadily growing market for both residential and non-residential buildings. The market is characterised by a small number of large contractors and several smaller niche players. The profitability of the main contractors has been rather modest for many years, but more of them appear to be focusing on profitability rather than volume now and for the period ahead. Many of the established niche players have strong profitability and focused operations. There is continual consolidation, with large players acquiring smaller companies, but activity in this segment has been fairly moderate thus far. The consolidation of various niches is, however, expected to accelerate since this is a focus for private equity players.
Until a few years ago, the leading technical consultancy firms in the Nordic region were largely focused on construction and infrastructure planning. Consolidations in the last few years have resulted in the large technical consultancy firms having expanded their remit to include architecture, project management, geomatics, industrial processes, energy, digitalisation, etc. The structure of the industry has therefore changed to one of many small specialists and a few large companies with a broad service range. The large projects are therefore now awarded to the main companies, with the small companies either working on smaller/specialised engagements or being subcontracted by the leading players. The market for the construction of new buildings and the rehabilitation of existing buildings has been fairly stable, with a slight upturn in recent years. However, the infrastructure market in the Nordic region is booming, with the strongest growth for technical consultants being experienced by those engaged in infrastructure planning and management. We are observing a gradual tendency for architects to become more closely involved in detailed construction planning and entering into closer cooperation with, or becoming part of the same company structure as, engineering consultants. The profitability and efficiency of technical consultants and architects has improved, partly due to extensive adoption of digital tools and systems (BIM).
Facade installation / rehabilitation
The façade industry was highly fragmented, with many small companies, until 2018. AF Håndverk then started to bring some of these players together in Norway, as did Fasadgruppen in Sweden, which in 2022 has reached close to 40 firms in the group across Sweden, Norway and Denmark. Some other groupings with a slightly broader service range, such as Håndverksgruppen and various painting groups, have also contributed to consolidation in the Nordic market. The background to this consolidation is that groups can negotiate better procurement terms and collaborate on the largest projects. Moreover, it improves the prospects for contracting directly with the large customers, instated of serving as subcontractors to turnkey contractors.
Plant and equipment hire
The hire industry is growing steeply, in response to overall growth in the Construction Industry, but also because the propensity to hire, rather than own, is increasing. A consolidation is underway in the minor plant & equipment segment (general hire), with regional players being acquired by larger national and international players. Moreover, some larger contractors have spun off their plant & equipment in separate companies that provide both internal and external hire. Heavy construction equipment has traditionally be owned by ground works contractors, but some of these have spun off their equipment fleet and started hire operations; mostly internally, but also with growing external volumes. The industry is expected to grow as the result of an increasing propensity to hire, and also because foreign players are being awarded larger engagements and need to hire equipment. The consolidation is also driven by the need to offer national players services throughout the country, or even across the Nordic region.
HVAC and electrical installation
Digitalisation and the green shift have boosted the adoption of energy-efficient solutions in buildings. We are therefore seeing the emergence of businesses that are specialising in HVAC control systems, in addition to all the players that install the physical plants (heat pumps, extract units, air conditioning units, ducts, pipes, electrical cables/foils and illumination). Customers, especially in commercial buildings, want ever more sophisticated equipment that is automatically controlled. Furthermore, the green shift entails expanding electrification and extending it to more areas of society (cars, boats, heating, etc.). The electrical solutions are also increasingly integrated with HVAC plants, video, audio and computer networks in buildings. Besides, more electrics are installed on infrastructure such as roads and railways than before. This requires more automation and computer expertise in electrical installation businesses, and also prompts some players to establish interdisciplinary service offerings, spanning the full range of installations.