Paving the Way to Growth in Pavement Services

Ardis Tabb of Baird’s Facility, Industrial, Residential and Environmental Services (FIRE) team recently attended PAVE/X 2025 in Tennessee. Throughout the multi-day conference, Baird connected with paving and pavement maintenance professionals to discuss the latest market trends. Keep reading for our key takeaways from this industry event. 

M&A: More Blue Sports Coats and Loafers at this Year’s Conference

The pavement market¹ has experienced considerable M&A growth and attention from investors – conference attendees remarked on the noticeable uptick in private equity and M&A advisors at these conferences in recent years.  We were unsurprised to see more of these sharp dressers at the event given the pavement market’s M&A tailwinds and appealing secular trends.

Several key factors are driving M&A, including: (i) the recurring demand for maintenance work driven by the ongoing deterioration of roads, which provides strong revenue recurrence; (ii) the industry's highly fragmented nature, which offers opportunities for consolidation and economies of scale; (iii), public spending growth (e.g., the Infrastructure Investment and Jobs Act, or IIJA), which provides a long-term growth opportunity.

It is unsurprising the pavement industry has caught the eye of private equity firms, who see immense growth potential. Private equity firms have come to appreciate the predictable and non-deferrable, maintenance-based (or highly resilient) nature of the industry. As a result, several scaled private equity-backed platforms have emerged as major consolidators. The increase in the number of platform companies has risen the last several years.  Larger, well-capitalized companies are actively acquiring smaller firms, primarily to increase their footprint (or capture share in existing markets), diversify their services and achieve economies of scale.

Source: Baird analysis

Despite the significant M&A observed in the industry, it is still in the early innings of consolidation, and as such we’ll continue to see new platforms, signaling substantial growth opportunities.

Paving Sector Recovery: What’s Driving the Rebound

The pavement market continues to demonstrate its resiliency but select services experienced a slowdown in 2024 as customers cut back their spend and shifted spend to other services lines (e.g., striping, seal coating, etc.). Market participants are bullish on the years ahead, and 2025 in particular, as they’ve begun to see an uptick in demand.

Several factors are expected to contribute to the sector’s rebound and continued growth.

1. The need for maintenance and rehabilitation of existing roadways and pavements cannot be overlooked. Many markets have aging infrastructure that requires consistent repair and resurfacing services due to wear and tear. This ongoing need for maintenance and rehabilitation ensures a steady demand for pavement services.
2. The increased funding for infrastructure projects due to federal initiatives, such as the IIJA, is driving demand for pavement services. These initiatives help support the maintenance, repair and upgrade of roads, bridges and public transportation systems, thereby generating ongoing demand for pavement services. This investment is expected to continue bolstering the industry in the coming years.
3. Continued urbanization is leading to the maintenance/repair and development of cities. As urban areas grow, there is a heightened need for the maintenance/repair and construction of roadways, parking lots, and other paved surfaces to support the increasing populations and vehicle usage.
4. As the U.S. economy grows, we will see an increase in commercial and residential construction projects, which will drive increased demand for paving services for new developments (e.g., shopping centers, residential neighborhoods, industrial parks, etc.).

Tackling Labor Challenges in the Paving Market

The shortage of skilled workers has led to intense competition among companies to attract and retain qualified personnel. This situation is driving wages higher as companies offer more pay to secure the limited labor pool available. Moreover, this upward trend in wages is being further fueled by general inflation and the rising cost of living. The new administration’s policies around immigration could potentially reduce the workforce further, exacerbating the labor cost issue due to a diminished pool of eligible workers.

To address these labor challenges, several initiatives are underway. Companies are focusing on attracting and training new workers through apprenticeship programs and various recruiting efforts. This proactive approach aims to build a more robust and skilled workforce for the future.

Furthermore, there is a notable push to expand vendor relationships or to work with certified partners. This not only helps in mitigating labor challenges but also allows companies to broaden their footprint, serve existing clients more nationally and capture a greater share of the market.

Interested in learning more? Connect with Baird Global Investment Banking

Ardis Tabb Director

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¹ Includes such services as paving, pavement marking & striping, sealcoating, crack filling and other related services.

² YTD period as of January 31, 2025.