Hi,
I'm looking at a niche construction deal right now, at the point of negotiating the LOI.
The company had a pretty big swing in EBITDA from 2022 toredactedbarely profitable in 2022 and hugely profitable inredactedon slightly higher 2023 revenue. The seller has chalked that up to fluctuations in raw material prices. Obviously, if levered up with SBA debt, a repeat of 2022 could be very problematic.
I have a masters degree in finance, so I've studied hedging, but I've never actually done it in practice. Is there a cost effective way (futures contracts on lumber, etc.) to hedge the majority of the risk away? I know I will be giving up upside to get a low-cost hedge, but I'm ok with that if I can take away the risk of an unfavorable fluctuation causing a default.
I'd love to chat with anyone who has experience in hedging construction supplies or any other commodity.
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by a searcher
from Massachusetts Institute of Technology - MIT Sloan School of Management
in Miami, FL, USA
in Miami, FL, USA
2yrs ago
Hedging raw material costs in construction?
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by a searcher
2yrs ago
from Stanford University in Washington, DC, USA
from Stanford University in Washington, DC, USA
Love this question, I've been wondering the same for a while (re. whether some of the larger / more financially savvy construction companies use the futures market to hedge their risk). No answer but hoping more chime in here to generate further options.
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by a searcher
2yrs ago
in Philadelphia, PA, USA
in Philadelphia, PA, USA
Depends on which niche you're talking about. I went to China once to source material for one of my service companies and was able to hedge that way but there could be others depending on the industry.
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