Through the first six months of 2014, Morrissey Goodale tracked 101 sales of U.S.-based architecture and engineering (AE) firms, roughly the same amount as during the first six months of 2013, and putting 2014 on pace for another strong year for domestic AE M&A activity. This positive momentum has continued into the second half of the year with AECOM’s recently announced agreement to acquire URS.
The deal is one of the most significant in the history of the AE space and creates a global firm with more than 95,000 employees. International deals, on the other hand, lagged through the first six months, with just 43 sales of internationally-based AE firms so far in 2014 compared to 54 during the first six months of 2013. Overall, activity remains strong and hot spots for dealmaking are tracking broader positive economic trends in the U.S. and abroad.
Domestic M&A Activity on Pace for Strong 2014
Domestic M&A activity through the first six months of 2014 was generally on pace with the first six months of 2013 (Graph 1, top). The pace of domestic AE industry consolidation, which accelerated coming out of the great recession in 2011 and carried forward into 2013, has remained relatively steady into 2014.
Industry firms appear to remain cautiously optimistic, with deal activity in 2014 on pace to rise to levels similar to 2012 and 2013 by year end. Firms continue to make bets on the positive economic climate in the U.S. The question will be whether this momentum continues into the back half of the year, as firms work to integrate recent acquisitions and continue to assess the U.S. market. With six months to go in the year, we anticipate domestic M&A activity to be in the 180 to 200 deal range.
Texas and California Lead States in M&A Activity
Regionally, Texas led all states in deal activity with 16 Texas-based AE firm sales through June 30, 2014 (Graph 2). Deals in the Lone Star State continue to be driven by a combination of strong economic growth and oil and gas activity. California, a perennial top state for industry dealmaking, followed with 12 firm sales. Colorado, which was among the top states for firm sales in 2013 with 11, saw seven firms based in the state sell so far in 2014. Notable among the top states was Washington, where we only observed one firm sale in all of 2013, and by comparison has produced 6 firm sales so far in 2014.
The U.K. and Canada Lead International Destinations
The United Kingdom and Canada were the top destinations for international firm sales through the first half of 2014 (Graph 3). Australia, New Zealand, and South Africa were also bright spots. With the Eurozone and BRIC countries continuing to face economic challenges, buyers looked to more stable markets for M&A opportunities.
The Megadeal is Back
On the heels of several large deals in the back half of 2013, megadeals continued into the first half of 2014. AE firms continued to seek transformational opportunities to differentiate their businesses. A few of the notable large deals so far in 2014 included:
-
AECOM’s agreement to acquire 50,000-person URS
-
AMEC’s agreement to acquire 14,000-person Foster Wheeler
-
3,000-person Conestoga-Rovers’ merger with 5,500-person GHD
-
Cardno’s acquisition of 760-person PPI Group
-
WSP Group’s acquisition of 1,700-person Focus Group
-
Parsons’ acquisition of 800-person Delcan
It remains to be seen how large scale consolidation will play out as the industry landscape continues to evolve.
Oil & Gas Driving Activity
Oil and gas has been a major driver of AE dealmaking, particularly in the U.S. Industry firms have sought to capitalize on a boom in domestic production and transportation of fossil fuels in places like Texas, Pennsylvania, Ohio, Colorado, and North Dakota. Just a few of the notable oil and gas related deals through June 30th included: Jacobs’ acquisition of Eagleton Engineering, Halff Associates’ acquisition of TriTex Technologies, Zachry’s acquisition of Commonwealth Engineering and Construction, NV5’s acquisition of AK Environmental, and GZA’s acquisition of Laurel Oil and Gas Corp.
One of the largest deals in the space was defense contractor Huntington Ingalls Industries’ acquisition of Universal Pegasus – a play to further diversify into the red hot oil and gas market.
Related Stories
| Apr 5, 2011
Top 10 Buildings: Women in Architecture
Making selections of top buildings this week led to a surprising discovery about the representation of women in architecture, writes Tom Mallory, COO and co-founder, OpenBuildings.com. He discovered that finding female-created architecture, when excluding husband/wife teams, is extremely difficult and often the only work he came across was akin to interior design.
| Apr 5, 2011
What do Chengdu, Lagos, and Chicago have in common?
They’re all “world middleweight cities” that are likely to become regional megacities (10 million people) by 2025—along with Dongguan, Guangzhou, Hangzhou, Shenzhen, Tianjin, and Wuhan (China); Kinshasa (Democratic Republic of the Congo); Jakarta (Indonesia); Lahore (Pakistan); and Chennai (India), according to a new report from McKinsey Global Institute: “Urban World: Mapping the economic power of cities”.
| Mar 30, 2011
China's low-carbon future city
In 2005, the Chinese government announced its target to reduce energy consumption per GDP unit by 20% by the year 2010. After a multi-billion investment, that target has been reached. The Chinese Climate Protection Program’s goal to increase energy efficiency, develop renewable energies, and promote energy savings while reducing pollutant emissions and strengthening environmental protection is reflected in the “Future City” by SBA Design.
| Mar 30, 2011
Is the AEC industry at risk of losing its next generation leaders without better mentoring?
After two or three horrifying years for the AEC industry, we are finally seeing the makings of a turnaround. However, data developed by Kermit Baker as part of the AIA Work-on-the-Boards survey program indicates that between 17% and 22% of design firms are eliminating positions for interns and staff with less than six years of experience. This data suggests the industry is at risk of losing a large segment of its next generation of leaders if something isn't done to improve mentoring across the profession.
| Mar 29, 2011
City's design, transit system can ease gas costs
Some cities in the U.S. are better positioned to deal with rising gas prices than others because of their design and transit systems, according to CEOs for Cities, a Chicago-based nonprofit that works to build stronger cities. The key factor: whether residents have to drive everywhere, or have other options.
| Mar 29, 2011
Chicago’s Willis Tower to become a vertical solar farm
Chicago’s iconic Willis Tower (formerly the Sears Tower) is set to become a massive solar electric plant with the installation of a pilot solar electric glass project.