The pandemic may have conspired to bet against construction—from supply chain issues to workforce shortages and uncertain demand—but the industry has adapted and has been growing at a surprisingly strong pace in 2021. Expectations are that brisk activity will continue in the near term, with forecasts of 10.8% growth per year over the next five years.
More construction activity tends to support innovation, as project developers and managers seek new opportunities to optimize resources and maximize profits. The construction technology sector is already benefiting in the current environment, and today’s developments should have a clear impact on the industry tomorrow.
Investor Interest Persists in Construction Tech
Mergers and acquisitions activity and private-equity investment in the construction tech sector has accelerated in terms of deal volume with 127 deals executed as of mid-December2021, up 23.3% (year-over-year), according to PitchBook. In general, M&A activity has been going strong across many industries, as PE firms and public corporations have amassed significant cash and are being highly strategic about its deployment to ensure the desired results for shareholders.
Given the amount of activity and buyers in the market, companies positioning themselves for acquisition have no shortage of opportunities to find the right match. Larger corporations tend to be seeking platforms that will enhance their portfolio of offerings, giving their construction industry clients a wider breadth of solutions to address unique or niche issues. Many PE firms, on the other hand, appear to be favoring more vertically focused solutions with the potential to scale for a strong ROI.
Innovations Tackle Traditional Issues
For construction industry players, all this investment activity bodes well for the future, as investments are flowing into innovation geared toward preserving high-value assets and introducing greater efficiency into operations. Some of the most compelling technologies not only solve a problem of today, but have the potential to address ancillary concerns down the road.
Companies with platforms that can track key assets, for instance, from human capital to tools and machinery are also seeing an increase in investments. On the surface, such platforms help companies track equipment and access to construction sites, protecting against theft and liability. Between the pandemic and other jobsite risks, such platforms can also assist with monitoring the health and safety of workers, contractors and other site visitors. Much software is currently niche-focused, but could be later applied to other environments, such as manufacturing and, later, play a role in managing insurance and workers compensation costs.
Managing costs is always a high priority and investors in the construction tech sphere are paying considerable attention to software platforms that can consolidate data from multiple sources—general contractors and subcontractors—and provide real-time updates from a central dashboard. Though seemingly simple, these platforms become quite complex when factoring in the nuances associated with specific subcontracting fields.
Similarly, dollars are also following construction tech companies focused on estimation software. Here, too, the most compelling prospects make accommodations for niche, specialty contractors—such as electricians, plumbers and roofers—and build in open APIs to allow for communication with broader estimation platforms.
As a result of innovation in the construction tech space, project managers and owners should see advances in the user experience. In addition to building the software or platform, tech companies will be challenged to create native apps that offer the functionality of a browser or desktop experience. The strength and success of new offerings will depend, in large part, on the ease of use on any connected device so that users have a consistent, seamless experience wherever they may be working.
Benefitting from Innovation, Avoiding Disruption
As of mid-December 2021,PitchBook reports 283 deals in the construction tech space have closed and$3.53 billion has been invested. Those numbers may not be complete, but they are a good indication of robust activity in the market. For most construction project owners and managers, many of these deals have flown under the radar, as few are truly disruptive to day-to-day activities.
Moreover, new software or platforms require careful consideration, as adopting new systems will inevitably demand time and training. However, owners and managers may begin to see the fruits of current M&A activity and PE investment as their tried-and-true platforms begin introducing desirable new features or collaborations to address the all-too-common pain points associated with managing construction resources.
Deal activity is expected to remain strong into 2022 for the construction tech sector, giving rise to more innovation ahead to support successful construction projects in the years ahead.
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