Private-equity firms looking for opportunities in construction-industry sectors have gone from casual dating to getting downright serious with their investments. Experts say collaboration and web-based tools are their top desires.
Chris Daum, president of FMI Capital Advisors, the investment banking subsidy of consulting and research firm FMI Corp., says his group has seen an "unprecedented upturn in inquiries" during the past 18 months, asking for FMI's input to look over deals in construction.
Darren Abrahamson, a principal with Bain Capital, speaking at Viewpoint Construction Software's recent user conference in Portland, Ore., says, "We see a lot of potential for more collaboration-tools adoption in the U.S., which is not as advanced among contractors compared to other regions, such as the U.K."
Bain's lead in a $230-million, third-round investment in Viewpoint this past April has spurred new interest in the sector and created buzz over when the 35-year-old Viewpoint might file for an initial public offering. The move suggests that more contractors, especially midsize to smaller firms, are ready to embrace investments in modernized tools to run their businesses.
Since its IPO last year, web-based payment management provider Textura has also survived negative short sellers and investors skeptical that more contractors would embrace software as a service (SaaS). It has gained new fans, including its latest customer, Turner Construction.
"I think the Viewpoint deal and the Textura IPO really caught a lot of people's interest," says Daum. "Coming out of the recession, the investment thesis is that software services to the engineering and construction industry will outpace the broader software market. So, if the software industry's growth is expected at 7% to 8%, those who service the engineering industry might see growth of 10% in the near future." He adds, "Private equity is always interested in getting in on the front end of a growing market."
Too Big Too Fast?
Viewpoint expects to clear about $130 million in revenues in 2014, says CEO Jay Haladay. That's about 57% higher than the $85 million the firm took in last year. Flush with venture-capital cash, Viewpoint has made a flurry of acquisitions to fill out its strategic road map, including, in February, Maxwell Systems, a provider of payment systems software to smaller contractors, and, in 2013, 4Projects, a U.K.-based provider of SaaS tools for collaboration.
The Maxwell acquisition adds 200 employees to Viewpoint, bringing the headcount to just over 700 as it expands into a new, 60,000-sq-ft space, where more product development work will be housed across the street from its Portland headquarters.
Adding more developers may be just what Viewpoint needs the most right now. During Viewpoint's user conference, Rob Humphreys, vice president of product management, addressed a concern that the firm may be getting too big too fast. "There may be concern over product dilution," he said during a presentation. However, he says the Maxwell acquisition allows Viewpoint to tailor its products to distinct users among its core contractor customer base. For example, the firm's just-updated Vista enterprise resource planning (ERP) platform can be used by larger contractors in its traditional customer base—that is, those with revenues of about $500 million; the newly added ProContractor platform can be tailored to firms with revenue in the $50-million to $100-million range that may be more interested in ease of use and simplicity.
"Large contractors want different things than smaller contractors," Humphreys says. Adds Bruce Kenny, vice president of global product development, "It helps our services teams target their support for those distinct customers."
The updated Viewpoint products are coming to market as private equity is finding its way "not just into the construction software market, but the construction market," notes Haladay. For example, more than 20 private-equity firms recently vied to purchase Parsons Brinckerhoff from Balfour Beatty, which was acquired in September by WSP Global, a Canadian engineering firm.
Adds Abrahamson, Bain's research shows construction customers want "the ability to tie [collaboration data] into their core ERP systems and have a better view between the two."
It's one reason Haladay says Viewpoint is offering tools that reflect this shift to adopt tools that extract data from projects for better collaboration and improved job-costing. "Everything flows out of that," Halady adds. "Whether it's collaboration or electronic forms or anything, job-costing is the heart that supplies blood to the rest of the body."
Updates prior version to clarify Viewpoint's expected revenues in 2014