BUSINESS OPERATIONS
Looking to buy
Investors are seeking acquisitions in the Canadian construction industry. BY MARK BORKOWSKI
D
espite headlines talking about slowing economic growth, at this time there is more money in the system than anyone can imagine, but there’s also a shortage of construction and infrastructure companies to acquire and good projects to invest in. Theories about baby boomers seeking to sell their companies have proven false at a time when capital investment firms are seeking established construction companies to invest in or buy. The institutional investment and high-net-worth communities are crawling over each other to find projects. Despite the downturn in the Canadian economy, the buyout and investment market for Canadian companies remains hot. Even early-stage businesses are being sought out. One of the major market shifts for the acquisition of privately held companies has been the growth in the number
These PEGs are ‘buyout groups’ that seek to acquire or invest in ongoing, profitable construction businesses that demonstrate growth potential. 22 / JUNE 2022
of Private Equity Groups (PEGs) over the past decade. These organizations number in the thousands in both the U.S. and Canada, and they have not been hard-hit by the credit crunch or the past stock market cyclicals. They have capital to invest and are looking for business acquisitions and investments. These PEGs are “buyout groups” that seek to acquire or invest in ongoing, profitable construction businesses that demonstrate growth potential. Beyond simply buying up companies, these firms generally manage money for insurance funds, pension funds, charitable trusts, and sophisticated investment groups. They have money to invest. PEGs have become key players in business acquisitions and have a number of different investment structures that may appeal to a business owner. They can offer flexibility as a liquidity source, giving entrepreneurs the ability to take some cash off the table, recapitalize their company, or simply sell and move on. Traditionally, the private equity market was restricted to acquiring or investing in large companies, but increased competition for those large operations has them broadening their scope. Moreover, the greater growth potential of smaller firms, as well as the appeal of having easier paths to exit their investment in the future have played a role in attracting PEGs to smaller companies.
HOW PEGS OPERATE PEGs are typically organized as limited partnerships controlled and managed by the private equity firm that acts as the general partner. The fund invests in privately held companies to generate above-market financial returns for investors. The strategy and focus of these groups’ investment philosophies and transaction structure preferences vary widely. Some prefer complete ownership, while others are happy with a majority or minority interest in acquired companies. Some limit themselves geographically, while others have a global strategy. PEGs also tend to have certain things in common. They typically target companies with relatively stable product life cycles, as well as a strategy to overcome foreign competition. They tend to avoid leading-edge technology, which is what venture capitalists want, showing a preference for superior profit margins and a unique business model with a sustainable and defensible market niche. Other traits that appeal to PEGs are strong growth opportunities, a compelling track record, low customer concentrations, and a deep management team. Most prefer a qualified management team that will continue to run the day-to-day operations while the group’s principals closely support them on the board of director level. PEGs have become a major force in the acquisition and investment arena. They
