The leveling off of housing starts could force many would-be buyers in the engineering and construction space to play it safe as they look for a trend in the market to solidify. However, with financing still historically cheap and cash-rich balance sheets at the ready, buyers remain anxious to put their capital to work. In addition, a decline in construction activity could lead savvy buyers to become as aggressive as multiples begin to tail off.
According to data published by the Interindustry Economic Research Fund, Inc. (IERF), revenue (in current dollars) for US engineering and R&D services is forecast to grow at an annual compounded rate of 8 percent between 2015 and 2019 while the value of US new public and private construction spending is forecast to grow at an annual compounded rate of 7 percent. The construction sector is growing, and many firms are increasingly optimistic about their revenue and hiring forecasts for the next year and beyond. A new report from the US Bureau of Labor Statistics predicts the industry will add 1.6 million jobs through 2022.
The value of US nonresidential construction spending, an indicator of the health of the construction market, rose 3.5 percent year-to-date in February 2015 compared to the same period in 2014. The value of US residential construction spending, an indicator of the health of the construction market, fell 0.8 percent year-to-date in February 2015 compared to the same period in 2014. US steel mill product prices, an indicator of commodity steel product costs used in construction, fell 4.8 percent in March 2015 compared to the same month in 2014.
The US is one of the top 10 most attractive national markets for investment in infrastructure, according to a recent report by engineering firm ARCADIS. But while the US needs to rehabilitate $3.6 trillion in existing infrastructure, government budgets are forecast to fund only about $2 trillion of this need by 2020, based on estimate by American Society of Civil Engineers. To fill the gap, investors and governments are exploring public-private partnerships (P3s) models that combine public money with private investment to fund needed infrastructure.
Posted by Jeff Johnson.