transformation at the top of the cycle - cagc … · billions of constant 2009 dollars. source: fmi...
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G r o v e P a r k I n n | J u l y 27 , 2 01 9
W. Chris DaumChief Executive Officer
FMI Corporation
Transformation at the Top of the Cycle
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Where are we in the industry cycle?Economy Still Growing, Nonresidential Slowing, Residential Recession
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Total construction spending put in place (US)Billions of constant 2009 dollarsSource: FMI Q1 2019 Construction Outlook
$-
$200
$400
$600
$800
$1,000
$1,200
$1,400
1965
1966
1967
1968
1969
1970
1971
1972
1973
1974
1975
1976
1977
1978
1979
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2021
1973 oil crisisFall of the Bretton Woods system
1979 oil shockIranian Revolution
Black MondayDJIA loses 22.6%
9-11Dot-Com collapse
Sub-prime mortgage collapse2008 financial crisis
Federal rate hike Second since 2008
50-year medianWhat’s next?
Where are we at in the construction spending cycle?
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Second Quarter Economic Performance (vs. Q2’18)
unemployment 3.7% near 50-year low; employment ratio at 79.7%; hourly wages 3.1%
residential housing starts are down, new home sales are down, median home price down (YoY)
consumer spending on durable goods slowing; auto sales flat and off-peak since 2015
% inflation below 2%; low energy prices
manufacturing index slipping; trade deficit widening
economy grew at 3.2%
personal consumption increased
business investment slowed
Source: Bureau of Economic Analysis; Silvercrest Asset Management
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“A greatness of American industry is that it continues to perform in spite of its government”
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Federal stimulus during the next recession may be limitedRepublican or Democrat
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Federal Debt Held by the Public as % of GDP
20
30
40
50
60
70
80
1/1/
705/
1/71
9/1/
721/
1/74
5/1/
759/
1/76
1/1/
785/
1/79
9/1/
801/
1/82
5/1/
839/
1/84
1/1/
865/
1/87
9/1/
881/
1/90
5/1/
919/
1/92
1/1/
945/
1/95
9/1/
961/
1/98
5/1/
999/
1/00
1/1/
025/
1/03
9/1/
041/
1/06
5/1/
079/
1/08
1/1/
105/
1/11
9/1/
121/
1/14
5/1/
159/
1/16
1/1/
18
% o
f GD
P
The only time in U.S. history the federal debt held by the public was this high was during WWII
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Leading at the Top of the Market Cycleirony, paradox and deficit
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Everest climbers die from poor decisions made near or at the summit
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So do contractors ....
Market Cycle
You are Here
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Leading on a Different Playing FieldBifurcation, Concentration and Urbanization
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Many Many Few
< $250M(< 100M specialty)
$250M to $1B($100M to $250M specialty)
$1B +
1999
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Many Few
< $250M(< $100M specialty)
$250M to $1B($100M to $500M)
$1B +
2019
100+
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Source: Economist, UN
Urban Population 1989 – 41%
10 million + (pop) – 2.3%
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Source: Economist, UN
Urban Population 2019 – 54+%
10 million + (pop) – 6.4%
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Source: Economist, UN
Urban Population 2030 – 60+%
10 million + (pop) – 8.6%
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Even Distribution of Growth - 1997 thru 2007
6.2% avg. annual MSA growth
Growth in 98% of markets
49% above national avg.
51% below national avg.
Source: FMI Construction Outlook Forecast
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Average MSA growth = 0.9%
Negative growth in 58% of markets
22% of MSAs above national avg.
78% of MSAs below national avg.
Negative Neutral Positive
Majority of Markets Did Not Recover - 2007 thru 2017
Source: FMI Construction Outlook Forecast
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Total construction spending put in place by metro market (2018)Forecast by Metropolitan Statistical Area (MSA)Source: 2018 FMI Overview, Featuring FMI’s Fourth Quarter 2017 Construction Outlook
Construction Spending is Concentrating in Fewer Markets
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Thriving
1. Top 10% of Growth Markets Grew = 8.6%
2. Top 10% of Growth Markets Account for 24% of ‘19 Spending
3. Average Growth Rate in the 38 Largest Markets = 5.6%
Surviving
1. Average Market Growth Rate = 2.1%
2. Markets Below Average Growth Rate = 215 (56%)
3. 50% of all Markets Grew Less Than Inflation = 1.6%
4. 23% of Markets Have Declined (negative growth)
The Last 10 Years (2009 to 2019)
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Largest Markets (2019) $ MM's Fastest Growing (last 10 years) CAGR1 New York-Newark-Jersey City, NY-NJ-PA 80,695.9$ 1 Naples-Immokalee-Marco Island, FL 14.0%2 Los Angeles-Long Beach-Anaheim , CA 50,868.0 2 Cape Coral-Fort Myers, FL 13.3%3 Dallas-Fort Worth-Arlington, TX 38,591.4 3 Punta Gorda, FL 12.8%4 Houston-The Woodlands-Sugar Land, TX 34,637.4 4 Port St. Lucie, FL 12.1%5 Washington-Arlington-Alexandria, DC-VA-MD-WV 32,132.3 5 North Port-Sarasota-Bradenton, FL 12.1%6 Chicago-Naperville-Elgin, IL-IN-WI 31,865.8 6 Sebastian-Vero Beach, FL 10.0%7 Atlanta-Sandy Springs-Roswell, GA 29,284.5 7 Greeley, CO 10.0%8 San Francisco-Oakland-Hayward, CA 26,479.2 8 Orlando-Kissimmee-Sanford, FL 9.6%9 Boston-Cambridge-Newton, MA-NH 24,796.5 9 Santa Rosa, CA 9.5%
10 Phoenix-Mesa-Scottsdale, AZ 24,033.6 10 Ocala, FL 9.3%11 Philadelphia-Camden-Wilmington, PA-NJ-DE-MD 23,685.3 11 Crestview-Fort Walton Beach-Destin, FL 8.9%12 Miami-Fort Lauderdale-West Palm Beach, FL 23,151.0 12 Bend-Redmond, OR 8.8%13 Seattle-Tacoma-Bellevue, WA 22,737.7 13 Provo-Orem, UT 8.8%14 Minneapolis-St. Paul-Bloomington, MN-WI 22,118.7 14 Fort Collins, CO 8.7%15 Denver-Aurora-Lakewood, CO 18,723.4 15 Denver-Aurora-Lakewood, CO 8.4%16 Riverside-San Bernardino-Ontario, CA 18,058.4 16 Boulder, CO 8.4%17 Orlando-Kissimmee-Sanford, FL 15,000.3 17 San Jose-Sunnyvale-Santa Clara, CA 8.3%18 Austin-Round Rock, TX 14,937.3 18 Lakeland-Winter Haven, FL 8.0%19 Detroit-Warren-Livonia, MI 14,803.5 19 Ann Arbor, MI 7.9%20 Charlotte-Concord-Gastonia, NC-SC 14,790.9 20 Austin-Round Rock, TX 7.9%21 Tampa-St. Petersburg-Clearwater, FL 14,441.4 21 Midland, TX 7.8%22 San Jose-Sunnyvale-Santa Clara, CA 13,363.8 22 Boise City, ID 7.8%23 Portland-Vancouver-Hillsboro, OR-WA 12,756.4 23 Tampa-St. Petersburg-Clearwater, FL 7.7%24 San Diego-Carlsbad, CA 12,704.8 24 Nashville-Davidson--Murfreesboro--Frankli 7.7%25 Sacramento--Roseville--Arden-Arcade, CA 11,597.8 25 Atlanta-Sandy Springs-Roswell, GA 7.6%26 Nashville-Davidson--Murfreesboro--Franklin, TN 11,462.1 26 Jacksonville, FL 7.6%27 Baltimore-Columbia-Towson, MD 10,770.6 27 Grand Rapids-Wyoming, MI 7.6%28 Las Vegas-Henderson-Paradise, NV 10,555.1 28 Miami-Fort Lauderdale-West Palm Beach, F 7.5%29 St. Louis, MO-IL 10,520.9 29 St. George, UT 7.5%30 Indianapolis-Carmel-Anderson, IN 9,987.6 30 Deltona-Daytona Beach-Ormond Beach, FL 7.2%31 Jacksonville, FL 9,673.1 31 Wilmington, NC 7.0%32 Kansas City, MO-KS 9,226.5 32 Reno, NV 6.9%33 San Antonio-New Braunfels, TX 8,989.8 33 Gainesville, GA 6.9%34 Raleigh, NC 8,773.4 34 Detroit-Warren-Livonia, MI 6.8%35 Columbus, OH 8,526.7 35 San Francisco-Oakland-Hayward, CA 6.8%36 Cincinnati, OH-KY-IN 8,382.0 36 Minneapolis-St. Paul-Bloomington, MN-WI 6.6%37 Salt Lake City, UT 7,503.2 37 Portland-South Portland, ME 6.5%38 Pittsburgh, PA 6,766.4 38 Palm Bay-Melbourne-Titusville, FL 6.4%
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1997 to 2007 2007 to 2017
Carolinas: Before and After
Average Annual Growth: 6.5% Average Annual Growth: -0.1%
14 of 24 markets negative growth
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2018 to 2023
Carolinas: Growth Thru 2023
Average Annual Growth: 2.3%
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Leading the Giantsthe Titanic was a megaproject
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Megaprojects
From 3% of all construction starts in 2013 to 33% of starts in 2018
1.8% of annual put-in-place between 2012 and 2018; forecast to average 16.7% from 2019 to 2028
674 projects totaling $2 trillion are in planning stages
Source: Building permits, Reed, Dodge data
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Embracing the Megaproject
Implications for the industry?
Implications for your company?
Early research identifies Trust as thecritical success theme
Owners and industry are working together to solve structural and delivery methods
Developing executive and project leaders with the right will be critical
Experience Leadership People Development Finance Technology
Competencies Strategic mindset Communication (all forms) Business acumen Balanced decision-making Political intelligence
Source: Heidrick & Struggles International; Russell Reynolds Associates
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Leading Changing Business Models and ToolsDigitization, Industrialization in Real-Time
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Enabling Technologies Driving Innovation and Transformation
Entrepreneurs and innovators from both inside and outside the industry are leveraging combinations of these enabling technologies to create new business models and transform existing processes – Brick & Mortar Ventures
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Vertical Integration of Supply Chain | New Business Models Point Solutions | Process Transformation
HighMaterials | Commercial | Multifamily | Lodging | Education | Light Industrial
Heavy Civil | Institutional | Ind. Process
The A/E/C Digital Transformation Landscape
Low Relative Complexity
Source: Brick & Mortar Ventures; FMI
There are roughly 2,000 technology companies offering solutions to the Built Environment –this dynamic along is overwhelming to most industry executives....The global E&C industry spends much less on technology than other industries
$4 billion in VC funding was invested in A/E/C technology in 2018 - WSJ
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What is Valued More – the Team, the Player or the Tools?
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The Industry is Underperforming with Technology
Foundation
Structure
Finishing
Assessment & Readiness
Selection and Adoption (executing well)
Ongoing Innovation & Evaluation (realizing value)
Leaders need to be more effective in answering the important ‘why’ and ‘how’ questions1) ensuring a rigorous assessment process takes place2) disciplined selection and implementation with alignment of all parties (vendors too)3) lasting change management that leads to intended benefits requires sustained effort
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When Expectations Are Not Met
Source: recent joint FMI/Plangrid study and publication
14%
11%
17%
19%
22%
22%
25%
36%
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Emerging Generations are Trending Green, Clean and Progressive
Paris Belgium
Australia
Global Strike for Climate Change 50,000 students in 2015 to 1.4MM in 2019
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The Situation
1. The entire world is urbanizing2. Construction spending is concentrating3. The construction industry is bifurcating 4. Megaprojects are dominating5. Technology is transforming6. Social demands are changing
How do these trends impact how you need to lead?
The Leadership Challenge
1. Where can you compete?2. How should you compete?3. How do your company to change?4. What will be your keys to success?5. How will your risk profile change?
Leading Forward
As the president and chief executive officer of FMI Corporation, Chris oversees themanagement of all FMI businesses and services in the United States and Canada and leadsthe firm’s strategic growth efforts across the firm’s investment banking, managementconsulting and principal investing business units. Previously, Chris served as president ofFMI Capital Advisors, the firm’s investment banking subsidiary, where he also led the firm’sutility infrastructure practice.
Today, Chris works with owners, boards and management teams on strategic issuesinvolving industry trends, leadership transition, ownership transfer, and mergers andacquisitions. He is a contributing author to numerous industry publications and mediaoutlets and is an energetic and entertaining speaker on the current and future impact ofeconomic, technology and competitive trends on the industry.
Prior to joining FMI, Chris served as global financial services leader for an industrialcompany with operations throughout North and South America and Europe, and he beganhis career in public accounting.
Chris is a graduate of Virginia Tech. He and his wife Sharon live in Raleigh, NC and havethree adult children.
W. Chris DaumFMI Corporation223 S. West Street12th floorRaleigh, NC 27603
Tel: 919.785.9264Cell: 919.931.0444E-mail: [email protected]
Website: www.fminet.com
W. Chris DaumPresident and Chief Executive Officer