BUSINESS VALUATION & FINANCIAL ADVISORY SERVICES Construction Overview Construction & National GDP 1 Construction & National Unemployment 2 Value of Construction Put-in-Place 3 Sector Focus: Nonresidential Construction 4 Trade-Weighted Index 5 Yield on 10-Year Treasury 6 Manufacturing Capacity Utilization 7 Private Investments in Manufacturing Structures 8 Office Rental Vacancy 9 Corporate Profit 10 Sector Round-up Residential Construction 11 Building Materials 13 Roads, Bridges and Highways 14 Mergers and Acquisitions 15 Bellwether Stocks & Industry Participants 16 About Mercer Capital 19 www.mercercapital.com VALUE FOCUS Fourth Quarter 2015 Construction & Building Materials SEGMENT FOCUS Nonresidential Construction EXECUTIVE INDUSTRY TRENDS • The FAST Act will provide $305 billion in transportation infrastructure funding for a guaranteed period of 5 years • The Fed’s rate hike in Q4 reversed a trend of declining treasury yields, potentially signaling an increase in financing costs • Stagnating and declining put-in-place measures • Vacancy rates demonstrate potential demand as corporate profit slides and financing costs increases
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Mercer Capital's Value Focus: Construction Industry | Q4 2015
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BUSINESS VALUATION & FINANCIAL ADVISORY SERVICES
Construction Overview Construction & National GDP 1Construction & National Unemployment 2Value of Construction Put-in-Place 3
Sector Focus: Nonresidential Construction 4
Trade-Weighted Index 5Yield on 10-Year Treasury 6Manufacturing Capacity Utilization 7Private Investments in Manufacturing Structures 8Office Rental Vacancy 9Corporate Profit 10
Sector Round-up Residential Construction 11Building Materials 13Roads, Bridges and Highways 14
Mergers and Acquisitions 15
Bellwether Stocks & Industry Participants 16
About Mercer Capital 19
www.mercercapital.com
VALUE FOCUS
Fourth Quarter 2015
Construction & Building Materials
SEGMENT FOCUS Nonresidential Construction
EXECUTIVE INDUSTRY TRENDS
• The FAST Act will provide $305 billion in transportation
infrastructure funding for a guaranteed period of 5 years
• The Fed’s rate hike in Q4 reversed a trend of declining treasury
yields, potentially signaling an increase in financing costs
• Stagnating and declining put-in-place measures
• Vacancy rates demonstrate potential demand as corporate profit
Mercer Capital’s Value Focus: Construction & Building Materials Fourth Quarter 2015
According to the Federal Reserve, a healthy economy typically has an unemployment rate between 4.5% and 6.0%. The
current level of 5.0% represents strength in the economy, after decreasing steadily from 5.6% a year ago.
Construction is a cyclical and seasonal industry, so its unemployment rate is more volatile. The major contributing
factor to the seasonal nature of the construction industry is the weather. Production of materials and projects in general
decrease during the cold, winter months. The construction unemployment is currently 7.5%, down from 8.3% a year ago.
This represents an overall strengthening of the industry. Entering the colder months of the next quarter, this number will
most likely rise, but not drastically. Lower unemployment rates suggest an increase of activity within the industry.
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
National Construction
Note: The national unemployment rate is seasonally adjusted, but the construction unemployment rate is not in order to show seasonality and recent trends. Source: U.S. Bureau of Labor Statistics
Construction OverviewConstruction & National Unemployment
Mercer Capital’s Value Focus: Construction & Building Materials Fourth Quarter 2015
The National Association of Home Builders uses surveys to produce two indices on the confidence level within the
homebuilding industry. For both surveys, respondents are asked to rate market conditions, with 50 being the index
average. Both indices show clear declines due to the housing crisis, but they have steadily increased, and both have
been above 50 since the middle of 2014. After reaching a 10-year high in October, HMI slumped slightly for the remainder
of the quarter. Moving in the exact opposite direction, RMI has gone up slightly this quarter but is down for the year.
While there will likely be fluctuations in both going forward, it is a good sign as long as these indices are above average.
0
10
20
30
40
50
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100
HMI RMINote: RMI is measured quarterly and approximated for a monthly basis using a straight-line approach. Source: National Association of Home Builders
Seasonally Adjusted Annualized Rates of New Housing Starts and Building Permits
Millions of Units
Private Housing Starts
Period % Change
Q-o-Q -4.8%
Y-o-Y 6.4%
Single Family Starts
Period % Change
Q-o-Q 3.6%
Y-o-Y 6.1%
Private Building Permits
Period % Change
Q-o-Q 9.0%
Y-o-Y 11.8%
Single Family Building Permits
Period % Change
Q-o-Q 5.5%
Y-o-Y 6.9%
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
2.2
2.4
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
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Private Housing Starts Single Family Starts Private Building Permits Single Family Building Permits
Source: U.S. Census Bureau Note: Permits at a given date are generally a leading indicator of future starts. Beginning with January 2004, building permit data reflects the change to the 20,000 place series.
Mercer Capital’s Value Focus: Construction & Building Materials Fourth Quarter 2015
Announce Date
Industry Subsector Target/Issuer Buyers/Investors Seller Description
December 16 Home Building JW Homes, LLC PulteGroup Inc. Wheelock StreetBuilds new homes, townhomes, and neighborhoods for home buyers in big cities in GA, SC, TN, and NC.
December 7 NonresidentialJ.L. Patterson & Associates, Inc.
Jacobs Engineering Group Inc.
Provides engineering design, construction manage-ment, and staff augmentation services among many others in the public and private sector across the U.S.
November 5 NonresidentialKBR, Inc., Infrastructure Americas Division
Stantec Inc. KBR, Inc.Divestiture of division that provides construction and engineering services in the U.S.
October 28 Home BuildingHans Hagen Homes, Inc.
M/I Homes, Inc.Operates as a home builder in Minnesota and Western Wisconsin offering home communities to families.
October 28 Building MaterialsHeavy Materials, LLC and Spartan Concrete Products, LLC
U.S. Concrete, Inc.Both manufacture ready-mixed concrete and aggregates in the U.S.
Reporters requesting additional information or editorial comment should contact Barbara Walters Price at 901.685.2120. Mercer Capital’s Industry Focus is published quarterly and does not constitute legal or financial consulting advice. It is offered as an
information service to our clients and friends. Those interested in specific guidance for legal or accounting matters should seek competent professional advice. Inquiries to discuss specific valuation matters are welcomed. To add your name to our mailing list
to receive this complimentary publication, visit our web site at www.mercercapital.com.
Mercer Capital provides valuation and transaction advisory services to the construction and building materials industries.
Industry Segments
Mercer Capital serves construction industry segments from to commercial and civil to residential. We also serve the
building materials sector from aluminum and steel to brick, glass, and lumber.
Mercer Capital Experience
• Family and management succession planning
• Buy-side and sell-side transaction advisory assistance
• Conflict resolution and litigation support
• Trust and estate planning
• Buy-sell agreement valuation, design, and funding advisory
Contact a Mercer Capital professional to discuss your needs in confidence.