Increasing profits in construction and real estate face serious threats from mounting challenges. KPMG’s report on mergers and acquisitions in the Dutch construction and real estate sector shows increased bankruptcies in 2023 due to higher capital costs, rising construction expenses, and declining revenues.
Last quarter, seven companies declared bankruptcy, compared to four a year earlier. Small firms face vulnerability from lagging profits, prompting KPMG to foresee more consolidation in the sector.
After a mere four acquisitions in late 2022, the count surged to ten in the initial half of this year. KPMG observed the acquisition count stagnating last year due to inflation and increased interest rates. Despite their continued impact, a fresh uncertainty has arisen.
Nanne Piepenbrink of KPMG Real Estate & Construction explains, “If you lack liquidity, are heavily financed, and face increasing costs and declining revenue, you have to consider how to solve that. For some, it becomes necessary to seek new capital.”
An analysis of the market reveals that buyers in the construction and real estate development sector are primarily interested in geographic expansion (34 percent), increasing market share (29%), and acquiring innovations and knowledge (21%).
For selling parties, business succession is the primary motivator (32%), followed by access to new capital (29%), and growth opportunities (21%). Piepenbrink adds, “In today’s construction sector, following in the footsteps of parents is no longer a given. Additionally, ensuring job security is a crucial concern for companies in a selling phase.”
In light of these trends, KPMG also observes an increasing interest from private equity in the construction sector. Financial investors particularly see opportunities to enhance business profitability through innovation.
To remain competitive, medium-sized companies must also invest in this area. While the number of construction companies investing in innovation has significantly increased in recent years, a decline is evident among smaller companies.
Smaller innovative companies (start-ups) often operate at a loss and struggle to attract growth capital. KPMG expects this to result in a rise in bankruptcies and acquisitions.
Real Estate Developers It is anticipated that real estate developers will be hardest hit by market developments. These companies face declining revenues and struggle to attract (external) capital.
Developers with significant financial risks and limited (capital) buffers will increasingly encounter financial difficulties.
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