The impact of large, transformational deals by integrated engineers and constructors (E&C) last year will spur continued M&A activity this year, as the largest firms use acquisitions to drive growth and enter new markets, according to the latest edition of FMI’s Mergers & Acquisitions Trends.
“Large, transformational deals highlighted robust M&A activity in the E&C industry in 2014,” said Chris Daum, Senior Managing Director and Head of Investment Banking at FMI. “While there may not be as many marquee transactions thus far in 2015, M&A activity remains very high, particularly among the largest U.S. and international firms that continue to pursue acquisitions as a conduit for growth and margin expansion.”
Large, integrated E&C firms remain acquisitive in 2015 as they look to expand beyond their current maturing markets. Competition among buyers for quality firms of size in attractive growth markets is leading to favorable valuations for sellers. One material challenge that exists for buyers has been the limited number of willing sellers that are of sufficient size to be attractive—e.g., heavy civil contracting firms above $200 million and utility T&D or multi-trade industrial firms above $100 million in value.
Persistent themes in 2015
Persistent themes are shaping broader trends within the industry:
• 2014 was notable for several “mega-deals” in the E&C industry, with three deals accounting for more than $11 billion in transaction value alone. Several multibillion-dollar transactions, including AECOM’s acquisition of URS, SNC-Lavalin’s acquisition of Kentz and the merger of AMEC and Foster Wheeler, reflected the continuing convergence of engineering and construction, the pursuit of global scale by large firms and competition for “mega-projects,” which continue to proliferate.
• Firms tied to public spending remain in a “holding pattern” until spending returns to normalized levels. Most of the new construction currently taking place is in the private sector due to a lack of public spending on infrastructure, and buyers have shifted their appetites toward companies servicing the more active private sectors. Potential sellers who are heavily tied to the public sector may attract limited buyer interest until the outlook for public infrastructure spending improves.
• Interest from strategic buyers exceeds the number of quality, motivated sellers in several industry sectors, driven in part by strong interest from international buyers. The US is the most attractive growth market for international firms faced with flat or declining business in their home markets. International buyers are most interested in national or large regional general contractors, heavy civil contractors, or large specialty firms focused on power, energy and industrial infrastructure.
Varied activity by sector
The carryover of robust M&A activity from 2014 in the E&C industry is most notable among firms involved in the design, construction or maintenance of power, energy, utility and industrial infrastructure. However, building products, energy services and cleantech and specialty contractors with large service and maintenance operations continue to see increased buyer interest.
In Oil & Gas, many private equity firms pulled back from pending upstream and midstream deals in the second half of 2014. The sustained decline in the price of oil is expected to fuel an increase in distressed sales, a decline in valuation multiples and a re-emergence of strategic buyers in 2015. Those financial buyers who remain active in the market are focused on acquiring quality assets at steep discounts. The industrial sector, meanwhile, is growing faster than the overall construction market. For that reason, we expect M&A activity for industrial trade contractors to increase over the next few years. The surge in industrial projects is due to the recent availability of low natural gas prices. This has driven both new and renovation projects, spurring some contractors to look to M&A as a potential solution.
Robust international activity
Many international buyers, meanwhile, who have historically focused on traditional construction firms, are beginning to shift their attention to integrated E&C firms. Many buyers believe the integrated model provides a significant entry point into the U.S. market for firms looking to make their initial acquisition. In addition, international buyers continue to see the U.S. as an opportunity for Public-Private Partnerships (P3) projects, and an integrated platform can provide earlier access to the development of revenue-generating projects.
“While 2015 may not match the level of activity seen in 2014, M&A remains a focal point of strategy for many large domestic E&C firms,” said Daum. “Coupling that with the increased interest from international buyers should allow for a continued robust M&A market in 2015.”
FMI’s Mergers & Acquisitions Trends report can be accessed here.
Related Stories
| Mar 12, 2014
London grows up: 236 tall buildings to be added to skyline in coming decade, says think tank
The vast majority of high-rise projects in the works are residential towers, which could help tackle the city's housing crisis, according to a new report by New London Architecture.
| Mar 12, 2014
14 new ideas for doors and door hardware
From a high-tech classroom lockdown system to an impact-resistant wide-stile door line, BD+C editors present a collection of door and door hardware innovations.
| Mar 11, 2014
Freelon Group to join Perkins+Will
The Freelon Group concentrates on museums, libraries, universities and other civic and institutional clients; Perkins+Will plans to incorporate this specialization into their design repertory.
| Mar 10, 2014
Field tested: Caterpillar’s Cat B15 rugged smartphone
The B15 is billed by Cat as “the most progressive, durable and rugged device available on the market today.”
| Mar 10, 2014
5 rugged mobile devices geared for construction pros
BD+C readers share their most trusted smartphone and tablet cases. The editors select some of their faves, too.
| Mar 7, 2014
Learning from common leadership errors
As a leader in the AEC world, you’ll likely find yourself making certain mistakes over the course of your career. Here are a few common leadership errors that can easily be avoided.
| Mar 6, 2014
Must see: Tour Seinfeld's apartment with virtual reality headset
Fans of the show can now explore a virtual 3D model of the iconic New York residence, thanks to one Web designer's painstaking effort.
| Mar 5, 2014
5 tile design trends for 2014
Beveled, geometric, and high-tech patterns are among the hot ceramic tile trends, say tile design experts.
| Mar 4, 2014
How EIFS came to America
Design experts from Hoffmann Architects offer a brief history of exterior insulation and finish systems in the U.S.
| Mar 3, 2014
Negotiate your way to success
There are few business skills as important as negotiation. Many successful businesspeople pride themselves on their ability to turn a deal in their favor. Here are a few key negotiation principles to ensure you’re generally getting a good deal.
