Anchor Peabody attended the annual International Roofing Expo (IRE) in San Antonio in February. We met with roofing contractors, distributors and manufacturers serving both the residential and commercial/industrial end markets, as well as private equity firms active in the building industry.
Similar to the tone at IRE in 2024, the feedback was largely positive for the roofing industry, with the bulk of the optimism driven by non-discretionary spending in the re-roofing and maintenance sector. Commercial new construction remains challenged by high financing costs, but with pockets of strength (e.g., data centers, healthcare). Residential single family new construction appears poised for a rebound, with demand remaining extremely high; however, mortgage rates and affordability remain headwinds to a full recovery in this market.
Hot topics of discussion included tariffs, interest rates, immigration, insurance, technology and end-markets. Below are the highlights of our discussions with industry participants.
Policy Impact
Tariffs. President Trump in his first weeks in office announced tariffs on the US’s three largest trading partners – China, Mexico and Canada, with the latter two set to go into effect in early March after a one-month delay. The most immediate impact here will be felt in the metal roofing category, with new incremental steel tariffs of 25% on all countries. While metal roofing is a highly durable option, it is already more expensive than other traditional roofing materials, and tariff-driven cost increases will put this category further out of reach for many customers. Other products primarily used in commercial roofing, like PVC, will also be hit hard. Distributors and contractors are relatively confident that they can pass along these costs to customers, and many maintenance and re-roof projects are “must-dos” regardless of pricing. However, material cost increases will likely lead to more competitive bidding and potential margin squeezes throughout the industry.
Interest Rates. Despite three cuts since last fall, rates remain stubbornly high, with the average 30-year mortgage rate hovering around 6.5%, and high yield bonds (a measure of financing costs for companies and acquirers) yielding around 7%. Builders, sitting on a large inventory of undeveloped land and high pent-up demand, are being creative with financing incentives, and we expect 2025 to outperform 2024 in the new home construction market – single family permits hit a 10-month high in January of 2025. Existing home sales will continue to remain sluggish, with most homeowners sitting on sub 4% mortgages from years ago and hanging on to them. This will limit inspection driven maintenance and repair demand for some time.
Labor. Roofing is a highly labor-intensive industry and much of the work in residential markets is performed by subcontractors who rely on immigrant labor. Some participants relayed concern that a shrinking immigrant labor pool could put further pressure on costs and profitability. Others noted that despite the intense media coverage, deportations under Trump currently lag those of the prior administration and immigration enforcement has occurred under previous governments with little notable impact to the overall economy.
Insurance and Building Codes. Changes in the insurance landscape present a double-edged sword for roofing companies. On the one hand, insurers suffering from catastrophic losses in many markets (e.g., Florida and North Carolina storms, Southern California fires) have raised deductibles and taken a conservative view on claims adjustments, increasing the burden on owners and limiting the scope of what they will pay for. On the other hand, years of losses and destruction have led insurers and municipal governing bodies to raise requirements for building materials and maintenance. These requirements will induce demand from both homeowners and commercial/multifamily operators to comply with updated insurance policies and building codes.
Technology
This year’s IRE had a record number of technology and software exhibitors, as the industry continues to adopt tech solutions at a breakneck pace. Software firms exhibiting tools for sales and marketing, estimating, project management, scheduling, and invoicing crowded the floor in San Antonio. Roofing, traditionally a low-tech industry driven by local connections and word of mouth, is quickly going digital, with firms like ServiceTitan, Roofr, Alivo and Acculynx among others quickly ramping up their business in the industry. Roofers are attracted to products that prioritize ease of use and simple deployment, solving real problems without creating new ones.
As the use of digital tools expands, scale will be important. Spreading the cost of a new CRM or project management software across a larger base of business is cheaper and more efficient, and highly scaled platforms will benefit the most from this development.
End-Market Outlook
Residential. Most residential re-roofers are forecasting modest growth in 2025 on the back of an aging housing stock driving needed repairs. Single family new construction should perform better in 2025 than 2024 and contractors with meaningful builder business will benefit, if only moderately, from this uptick. Builders looking to streamline vendor lists and centralize processes may turn to larger platforms that can serve them in multiple geographies and drive purchasing power through scale to create competitive cost positions. Discretionary exterior projects (e.g., siding replacements, gutters, columns, porches, etc.) will continue to be sluggish on high financing costs and limited existing home turnover.
The storm and restoration market, while volatile, will prove lucrative to contractors in select markets, with multi-year rebuilds underway in areas impacted by natural disasters last year.
Multifamily. After significant building activity in 2023 and 2024, developers are not expecting to break ground on new units until capacity has been absorbed and vacancy rates decline and stabilize. We expect new deliveries in 2025 to be well below 2024 and a turnaround is not expected until next year or later.
Non-residential. The commercial sector performed well for most participants last year, and we heard meaningful optimism that it will continue to do so. Regular maintenance and re-roof projects will drive much of the performance here, with new construction hobbled by higher interest rates and an uncertain inflation picture. Still, there are pockets of construction that are predicted to grow above the rate of the overall economy. These include data centers, being constructed at a furious pace on the back of cloud computing and the AI revolution, healthcare, student and senior housing, and warehouse/distribution centers.
M&A Market
Private equity firms remain highly interested in the roofing contractor space. Many entered the market as a safe haven in building products, propped up by non-deferable demand and characterized by a large, fragmented market ripe for consolidation. The years 2021 – 2024 saw a feeding frenzy as private equity-backed platforms looked to aggressively scale and add new locations and geographies, often paying premium multiples. Now that many of these companies have achieved an initial level of scale, they can afford to be more value oriented. As a result, we have seen residential re-roof multiples fall from the 8x – 11x EBITDA range to a more sustainable 6x – 9x. Still, the market window remains open to sellers looking to transact and take advantage of the benefits of size and a potential second bite at the apple when these initial platforms trade in the next one to three years.
Independent owners have also expressed eagerness to transact in the near term, having delayed exits. They will be closely watching the market over the next several months. Historically, buyers have focused on a single market, for example eschewing new construction or commercial exposure as they built a residential re-roof platform. With pure-play businesses in short supply and buyers turning their attention to the benefits of diversification, businesses with both commercial and residential exposure will have more interest than in the previous consolidation cycle.
Material cost pressures, labor availability and the deployment of efficient technology have shown many owners that there are significant benefits to scale and teaming up to form larger enterprises. Despite potential market risks, Anchor Peabody believes that these dynamics will drive robust M&A activities in 2025.
As a trusted advisor to owners and executives in the Roofing & Exterior Contractor space, we leverage our unmatched industry knowledge and M&A expertise to achieve best-in-class outcomes for founders and owners. We welcome a confidential conversation to discuss your options and strategy in this rapidly evolving market. Please reach out to me at [email protected] or call at 917.520.2256.