NEWSLETTER Q3 2025 Industrial and Construction Services
INDUSTRY EXPERTS MEET OUR
NICK KOZIK DIRECTOR
TAMMIE MILLER MANAGING DIRECTOR
TIM OLESZCZUK MANAGING DIRECTOR
NEWSLETTER Q3 2025 Industrial and Construction Services
Q3 2025 ECONOMIC REFLECTION Persistent high interest rates and financing costs continue to create headwinds, particularly for residential and private investment. Bond yields are higher than they were leading up to the September rate cut, signaling how little the Fed controls rates in an environment of high tariffs and federal deficits. Materials and labor costs remain volatile, keeping pressure on project budgets and timelines. Uncertainty driven by tariffs and the volatile trade environment has slowed decision making and caused some project timelines to extend Growth is slowing but remains positive, with federal infrastructure spending and resilient nonresidential construction helping offset weakness in housing.
ECONOMIC DATA TO WATCH
2024 YTD 2025
2020 2021
2022
2023
(1)
CPI-U
258.8 271.0
292.7
299.0
315.5 324.0
Annual % Change Rate of Inflation
1.2% 4.7% 8.0%
4.1%
3.4% 2.9%
Fed Funds Rate - Annual Average (2)
2.16% 0.36% 0.08% 1.68% 5.03% 4.33%
90-Day SOFR
0.08% 0.05% 1.39%
2.44% 4.69% 4.31%
(1)
10-Yr. Treasury - Avg. Yield 0.90% 1.52%
2.84% 3.88% 4.40% 4.20%
Unemployment
8.1%% 5.3% 3.6%
3.7% 4.3% 4.2%
(1) U.S. Dept. of Labor Bureau of Labor Statistics (2) New York Federal Reserve
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3 FACTORS INFLUENCING M&A IN Q3 2025
HIGH INTEREST RATES AND FINANCING COSTS
Borrowing remains expensive, with high interest rates and cautious lenders raising the cost of leveraged deals. While central banks have moved toward at easing, long-term rates remain stubbornly high, keeping financing costs elevated. Private lending continues to fill the gap left by traditional lenders, but at premium pricing, forcing buyers to be more selective, contribute more equity, and get creative with deal structures. Uncertainty around the broader economy continues to cloud the outlook. Growth is slowing at different rates across regions, labor markets show conflicting signs, and ongoing geopolitical tensions weigh on business confidence. The unclear path of interest rate cuts, combined with trade uncertainty and fluctuating consumer demand, makes it challenging for dealmakers to assess future performance and agree on valuations. Regulatory and trade policy risks remain a significant headwind for M&A. Antitrust authorities in the U.S. and Europe are taking a tougher stance, extending review timelines and increasing the likelihood of deal adjustments. At the same time, shifting trade policies, tariffs, and geopolitical tensions are creating additional uncertainty for cross- border transactions. These dynamics are forcing dealmakers to price in higher execution risk, pursue more creative deal structures, and in some cases, limit activity to markets or sectors with insulation from trade uncertainty and/or clearer regulatory outlooks.
MACROECONOMIC UNCERTAINTY
REGULATORY AND TRADE POLICY RISKS
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INDUSTRIAL AND CONSTRUCTION SERVICES | Q3 2025 Industrial and construction services continue to hold steady, even as higher borrowing costs and weaker residential and office markets create headwinds across the broader economy. Most industrial and commercial service providers are reporting flat to modest growth, with nonresidential construction activity, particularly infrastructure, power generation, and data centers, supporting the sector through mid-2025. Infrastructure-focused contractors, such as transportation, utilities, power, and water systems, remain well-positioned, benefitting from sustained public funding and large- scale private investment. This trend is expected to extend into the coming quarters as legislation-driven spending, reshoring initiatives, and power infrastructure expansion maintain momentum. Uncertainty remains around long-term policy direction and potential trade impacts on material costs, but so far these factors have not materially slowed project starts or shifted near-term planning. Many construction mangers report high pipeline levels but slowed or delayed project timelines causing actual work to push out.
M&A CONDITIONS | Q3 2025 Overall M&A activity in construction services remains steady but selective; higher borrowing costs continue to limit heavily leveraged transactions, favoring strategic buyers and well-capitalized platforms. Multiples for specialty contractors, including scaffolding and access services, Infrastructure spending and large-scale industrial projects such as data centers, energy, and utilities are driving buyer demand for scaffolding and specialty service providers with recurring rental and maintenance revenue. Private equity interest in construction rental and industrial soft craft assets seems to be increasing, with several marquee transactions either recently completed or in process. are holding firm, particularly in infrastructure-driven markets.
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FEATURED BLOG POST How to Think About Your Owned Real Estate When You Sell Your Business
TOPIC HIGHLIGHT Construction Planning Booms, up 51% in 12 Months The Dodge Momentum Index (DMI), which typically leads actual construction spending by about a year, rose 7.5% in August, signaling a notable increase in planning activity. Over the past 12 months, overall planning is up 51%, with commercial projects rising 38% and institutional projects, such as education and healthcare, surging 84%. Much of the growth is being driven by commercial sectors like data centers, warehouses, and hotels, while institutional gains have been boosted by projects including detention facilities and court buildings. Despite this momentum, Dodge cautions that ongoing economic and fiscal uncertainties, such as tariffs and cost escalations, could cause volatility in planning activity and project timelines in the coming months. [LINK]
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TOPIC HIGHLIGHT Construction Spending Slide Deepens
Nonresidential construction spending fell for the third month in a row in July, with private nonresidential outlays declining by 0.5%, even as public nonresidential spending rose slightly by 0.3%. Industries such as manufacturing and commercial construction were among those most impacted. Key contributing problems include tariff uncertainty, rising costs, and a worsening shortage of labor. Economists warn that without more certainty around trade policy and better labor supply, the second half of 2025 could be quite challenging for the construction sector. Still, some analysts note that infrastructure-related work could help offset part of the downturn. [LINK]
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INDUSTRIAL & CONSTRUCTION SERVICES PUBLIC VALUATION INDEX
Source: TKO Miller Proprietary Construction & Industrial Services Public Index Note: Companies with outlying multiples due to financial inconsistencies have been excluded to avoid skewing data
MIDDLE MARKET VALUATION MULTIPLES
Source: GF Data Note: Final data on most recent quarter lags by 2-3 months
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WHERE ARE PUBLICLY TRADED INDUSTRIAL SUBSECTORS VALUED? | Q3 2025 EV / EBITDA
Construction Services
Energy & Infrastructure
Environmental Services
Engineering & Consulting
Equipment Rental
LMM* Equivalent
LMM* Equivalent
LMM* Equivalent
LMM* Equivalent
LMM* Equivalent
5.8x 6.3x
13.2x 11.4x
8.6x 7.5x
6.0x 5.3x
8.3x 9.0x
Q3 2025 Q2 2025
9.2x 8.0x
11.9 10.7x
11.7x 9.1x
8.2x 6.4x
8.3x 7.5x
*Lower Middle Market; a discount has been applied to account for the smaller, less liquid nature of private companies.
Source: TKO Miller’s Proprietary Construction & Industrial Services Public Index
VALUATION DISCUSSION
TOPIC HIGHLIGHT Rising Materials Costs Test Construction’s Breaking Point
In Q3 2025, valuations for publicly traded industrial subsectors moved higher across the board. Construction Services saw the biggest jump, rising to 13.2x EV/EBITDA from 11.4x last quarter. Engineering & Consulting and Equipment Rental also gained strength at 11.9x and 11.7x, while Energy & Infrastructure held steady at 8.6x. Environmental Services was the only sector to dip slightly, down to 8.3x from 9.0x in Q2. Adjusted for the lower middle market, multiples remain lower, reflecting the size and liquidity discount for smaller private companies.
Construction input prices rose by 0.2% in August, driven largely by increases in iron and steel costs, according to a Producer Price Index (PPI) analysis by Associated Builders and Contractors. Over the past year, input costs are up 2.3% overall and 2.6% for nonresidential construction, despite some offsetting declines in oil and natural gas prices. Tariff hikes are amplifying volatility in material costs, prompting many contractors to report project delays, cancellations, or cost-sharing with suppliers. There’s growing concern that the market is approaching a breaking point where owners might put planned projects on hold due to cost pressures. Economists caution that persistent input inflation could weigh on construction spending even as demand remains strong. [LINK]
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NOTABLE TRANSACTIONS | Q3 2025
Quanta Services, Inc., an industry leader in providing specialized infrastructure solutions to the utility, renewable energy, technology, communications, pipeline and energy industries, acquired Dynamic Systems, a premier, turnkey mechanical and process infrastructure solutions provider. The transaction strengthens Quanta’s craft-led critical path capabilities and front-end services for the growing technology, manufacturing, and other load center markets.
Thorpe Specialty Services, an industrial services company headquartered in Houston, Texas, providing maintenance, engineering, and specialty services in high-temperature, corrosive, and challenging environments, has acquired Williams Refractory Services, Inc., a Missouri-based provider of refractory maintenance and installation services for industrial clients in the cement, power, and related markets. The transaction expands Thorpe’s geographic reach into the Midwest and strengthens its refractory capabilities, complementing its existing corrosion and plant maintenance services. Backed by KLH Capital, this marks Thorpe’s third strategic acquisition. Ariel Alternatives, in partnership with JPMorgan Chase & Co., has acquired Groome Industrial Service Group from Argosy Private Equity. Groome, a 55-year-old specialty maintenance provider with about 900 employees across 20 U.S. locations, serves the power generation, heavy industrial, and municipal sectors. Ariel plans to leverage Groome’s patented technologies and strong market presence to capture growth opportunities driven by rising energy demand, AI-driven data center expansion, and an aging power infrastructure.
Atlas Copco Group, a Swedish multinational industrial company that provides compressors, vacuum solutions, generators, pumps, power tools, and assembly systems to customers worldwide, has acquired National Tank & Equipment, a Texas-based company that rents and sells specialty liquid-handling equipment, including tanks, pumps, and related solutions, to industrial and energy markets across the United States. The acquisition marks the company’s entry into the U.S. specialty dewatering market.
Relevant Industrial, a Houston-based distributor of valves, instruments, and automation equipment, has acquired Minnesota-based Lindberg Process Equipment, a provider of industrial heating and combustion systems. Lindberg’s operations will be integrated into Relevant’s Twin Cities facility. The acquisition expands Relevant’s presence in the Midwest and adds new thermal and heating capabilities to its portfolio.
BCP, a services and infrastructure-focused private equity management firm, has acquired Brown & Root Industrial Services, a provider of non-discretionary, specialty industrial services The acquisition expands Brown & Root’s footprint, strengthened their workforce, and enhances the services provided to their clients.
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