The architecture, engineering and construction sector continues a period of robust consolidation with firms trying to position themselves as jacks of all trades, in wider and wider geographies.
Even the building materials sector is busily merging and acquiring to deal with overcapacity and to improve their competitive positions, according to a new report out from PricewaterhouseCoopers LLP. Deal volume in the third quarter was 54% greater than the same time last year. The greater share of third quarter deals were in the engineering segment (26%), with construction materials manufacturing coming in a close second at 24%.
“Engineering and construction companies are scaling up and doing larger deals that better position them in the global marketplace by adding human capital or technical capabilities to their portfolios, especially in geographies where they might not have previously had a presence,” said H. Kent Goetjen, U.S. engineering and construction leader at PwC. “This can be achieved through both outright strategic acquisitions or joint ventures and in many cases is making companies more competitive to bid on larger projects with higher margins.”
If any series of deals exemplifies that it is the ones pulled off by AECOM in July. After buying up its San Francisco rival, URS Corp. AECOM set its sights on Hunt Construction Group to bolster its portfolio in the sports, health care and aviation markets. The resulting company will be a fully integrated infrastructure and federal services provider, and will have 95,000 employees working in 150 countries.
So far in October there have been 18 mergers and acquisitions in the U.S. AEC industry announced or completed, according to morrissey goodale LLC. Many of these moves are designed to increase company abilities, or expand into new territories. According to PwC, design and consultancy firms are marrying construction companies, signaling moves to become full service firms. They’re also going after higher value-added services like design, and are working to reach balanced positions within their regions.
In a move to expand geography, the merging of Rentenbach Constructors Inc. in Knoxville, Tennessee, with The Christman Company in Lansing, Michigan will allow the two companies to go after and deliver projects throughout an eight-state area, according to Steve Roznowski, Christman CEO.
Boomers and talent
Not surprisingly, the shortage of talent is also inspiring M&A activity. Companies that need highly specialized people for high demand markets are acquiring firms that have the talent they need. But they’re also green lighting joint ventures when talent is an issue for them as they try for bigger, more complex projects that have non-traditional funding sources.
“While we are seeing companies in other industries divesting niche assets or focusing on distinct businesses, many engineering and construction companies are doing the opposite. By adding additional services and skills they are not only seeking to become a one-stop-shop to have complete end-to-end services for their clients, but are also diversifying to protect their bottom line as certain areas in the industry slowdown, often due to oversupply,” Goetjen continued. “We expect to see continued robust activity in the engineering and construction industry as companies continue to expand both vertically and horizontally in the coming months.”
There is also the baby boomer effect in action in the M&A space as well. Many owners and senior leaders delayed retirement through the last great recession, but now that things are picking up again there is a continuous departure of executive leadership going on, according to FMI. When the next generation in family-owned businesses aren’t interested in the business, or the business doesn’t have the capital and patience to manage a transition, selling becomes attractive.