The U.S. paving and asphalt sector is experiencing a surge in mergers and acquisitions (M&A) activity, driven by a combination of factors that have transformed this once-overlooked industry into a hotbed of investment opportunities.
Historically, services like paving were often overlooked by traditional private equity firms. Concerns about asset intensity, a perceived lack of market-leading companies, and assumptions about project-driven demand kept many investors at bay. However, this perception has dramatically shifted in recent years.
Private equity firms have come to recognize the predictable, non-deferrable nature of maintenance in the paving industry. With a total addressable market exceeding $10 billion, the sector’s potential has become too significant to ignore. Our research team recently took a deep dive on this sector. Let’s explore the key drivers behind this trend and what it means for business owners.
The Infrastructure Investment and Jobs Act (IIJA)
A major catalyst for the industry’s growth is the 2021 Infrastructure Investment and Jobs Act (IIJA). This legislation addresses a critical need: U.S. infrastructure has long suffered from neglect, age, and insufficient funding, resulting in a staggering backlog of road and bridge repairs exceeding $550 billion.
The IIJA allocates an additional $110 billion for roads and bridges, bringing the total dedicated spending to $360 billion over five years. This substantial increase in public infrastructure spending has created strong tailwinds for the asphalt paving sector, attracting even more investor interest.
Factors Driving M&A Activity
Several key factors are fueling the M&A boom in the paving industry:
- Recurring Demand: The consistent degradation of roads ensures a steady stream of maintenance and repair work, creating a reliable revenue base.
- Industry Fragmentation: The paving sector remains highly fragmented, offering ample opportunities for consolidation and economies of scale.
- Public Spending Growth: The increase in infrastructure spending, particularly through the IIJA, provides a strong foundation for long-term growth.
- Higher Valuations: The influx of private equity investors has driven valuation multiples considerably higher, creating attractive exit opportunities for business owners and resulting in more deals.
The State of Consolidation
While several sizable private equity-backed platform companies have emerged as significant consolidators in the category, the industry is still in the early stages of consolidation. New platform investments continue to emerge, signaling substantial runway for growth.
These platforms are actively pursuing add-on acquisitions to build scale and broaden their scope of services. This trend creates opportunities for smaller paving companies to become part of larger, well-funded organizations.
Looking Ahead
As public infrastructure spending continues to increase and infrastructure projects funded by the IIJA move out of planning phases, we anticipate sustained interest in the paving and asphalt sector from both strategic and financial buyers. For business owners in this industry, the current market dynamics present a unique opportunity to explore strategic options and potentially realize significant value.
Explore Your Options
If you’re a paving or asphalt business owner curious about the M&A market or considering your strategic alternatives, now is an excellent time to start the conversation. At Align Business Advisory Services, we specialize in lower middle-market M&A with a strong focus on industrial services, including the paving and asphalt sector.
Our team has facilitated billions of dollars in industrial services transactions, giving us deep insight into current market dynamics and opportunities. Whether you’re looking to understand your company’s potential value, explore growth through acquisition, or consider an exit strategy, we’re here to guide you through the process. Contact Align Business Advisory Services today to learn more about recent deals in the paving and asphalt space and what M&A opportunities might be available for your business in today’s market.