William Blair

Brandon Dobell

The digitalization of the construction industry has manifested itself in the form of smart buildings that are part of the industrial Internet of Things (IoT) software that has replaced inefficient paper-based systems for managing projects, and new tech-enabled approaches to property management. As meaningful as each of these advancements is in its own right, the true power of construction’s digital revolution is unlocked when all phases of the construction lifecycle—design, build, operate, and maintain—are connected in a feedback loop that drives value for property owners and tenants, as well as vendors that are well-positioned to capitalize on these trends.

As investment bankers covering building technology, construction-focused Seas, and property management and related services, we see firsthand how the trends of connectivity and convergence are reshaping the landscape of the broader construction industry. We examine several key trends that have emerged from the ongoing digitalization of construction and property management and look at how they are shaping deal making and value-creation opportunities in the space.

Connectivity Drives Operational Efficiency and Profitability

A fully connected feedback loop across the construction and property management continuum unlocks powerful opportunities to enhance operational efficiency and increase profitability for project owners and managers. Buildings equipped with temperature and lighting sensors along with automated controls powered by sophisticated software are able to drastically reduce energy costs—while increasing tenant satisfaction. Smart buildings also reduce the total cost of ownership by gathering and sharing real-time information that enables preventative maintenance.

End-to-end IoT platforms that consist of connected devices, software-enabled workflows, and data analytics are redefining construction management. Seas-enabled feedback loops are reducing project costs by providing improved cost benchmarking and enhanced visibility into the ROI of vendors, equipment, and input materials. By aggregating data from thousands of projects, market-leading platforms are empowering more efficient procurement decisions and identifying ways to reduce costs and completion times across the construction lifecycle.

From an acquisition and investment perspective, strategic buyers and private equity funds have been especially aggressive in pursuing platforms that connect architects, engineers, contractors, and project owners. Workflow automation and management solutions that create enhanced connectivity, project visibility, productivity, and risk mitigation tools for constituents across the construction lifecycle have received very attractive valuation multiples in recent transactions.

Skills Gap Widens as Technology Advances

In addition to the efficiency gains created by these connected loops, the digitalization of the construction and property management industry is also being driven by a generational shift. As millennials and other digital natives climb the ranks of tenants and other stakeholders throughout the construction industry, clients increasingly expect tools that allow for mobile access, collaboration, and seamless sharing of information across platforms.

As the construction and property management industries become more reliant on advanced technology, the shortage of professionals with the skills needed to manage and operate these tools is becoming more pronounced. This, in turn, has increased the value proposition of large property and facilities management companies that can amortize the cost of attracting, training, and retaining highly technical workforces across massive asset portfolios. Construction and engineering companies are being forced to invest more in attracting digitally savvy professionals and training existing workers to use new platforms.

Buyers Aggressively Pursue Increasingly Scarce Assets of Scale

Since 2017, the construction technology industry has seen a surge in acquisition activity by large consolidators, including Oracle, Trimble, Fortive, and Autodesk, looking to create comprehensive portfolios across all stages of the construction continuum and connect the physical and digital worlds. These transactions have had a ripple effect across the industry and pressured other large diversified industrials companies to accelerate their consolidation strategies. In addition to this activity by strategic buyers, private equity funds have aggressively pursued targets in construction technology.

As a result of the recent consolidation wave, making transformative acquisitions has become increasingly difficult. Given the current scarcity of targets of scale in construction technology, many consolidators are increasing their efforts to build capabilities internally or fund the development of emerging platforms. Many of the large property and facilities management companies such as CBRE, JLL, Cushman & Wakefield, and Colliers have been active acquirers and have either launched their own venture capital funds or are partnering with venture funds or incubators to spur the development of the capabilities needed to enhance their connectivity across the construction lifecycle.

Through our transaction experience in building technology, construction-focused software, and property management, we have seen firsthand how much value the trends of connectivity and convergence are creating throughout the construction and property management industry. We are confident that these themes will continue to define growth opportunities, capital raising, and mergers and acquisitions activity across the industry over the next several years.