PwC's latest quarterly analysis reported that the worldwide engineering and construction industries closed 218 merger and acquisition deals in 2014 worth more than $172 billion. The numbers are more than three times greater than 2013's total of $55 billion. Last year was the busiest year for M&A activity since 2007.
There were four mega deals in the fourth quarter of 2014, including one valued at $35 billion. Overall, there were 21 mega deals last year, totaling $127 billion. The greatest number of deals took place in Asia and Oceania.
“Some of the significant year-over-year growth in M&A activity can be attributed to companies seeking to better position themselves for mega projects that not only require a longer commitment of time and capital, but also deeper pools of highly skilled talent,” said H. Kent Goetjen, U.S. engineering and construction leader at PwC. “The lack of available talent, which is being fueled in the U.S. by the retirement of the baby boomer generation, is driving up the price of acquisitions and will continue to do so for the foreseeable future.”
PwC analysts are monitoring several other trends that are expected to affect the values and locations of deals in the engineering and construction sector, including:
• The integration of design and consultancy firms with construction companies is well under way as the E&C industry continues to move toward full service integration. Firms are generally looking to leverage higher-value added services, such as design, while balancing out their regional exposure.
• A major driver of consolidation is talent needs, as companies compete for specialized technical expertise in high-demand segments. As an alternative to acquiring expertise, some companies are embarking upon joint ventures, but these are complicated and add significant operational risk to any project. Companies are positioning themselves to bid on larger, increasingly complex projects with new partners and non-traditional sources of funding.
• A flurry of smaller, local deals took place, particularly within Asia. Cross-border activity dropped to 22% of the total in the quarter, with most local activity occurring in Asia.
• Cement oversupply and tepid demand continue to plague the industry. Top players, in an attempt to maintain their market share and margin, continue to acquire smaller companies post-merger announcement of Holcim and Lafarge.
• The consolidation in Asia was not limited to the construction materials segment, and not all driven by overcapacity, as all segments of E&C experienced a pick-up in local consolidation. The uncertain economic outlook in China raises many concerns for inbound activity in Asia but does not seem to be hindering deal activity in the region.
Related Stories
| Aug 11, 2010
Education's Big Upgrade
Forty-five percent of the country's elementary, middle, and high schools were built between 1950 and 1969 and will soon reach the end of their usefulness, according to the 2005–2008 K-12 School Market for Design & Construction Firms, published by ZweigWhite, a Massachusetts-based market-research firm.
| Aug 11, 2010
Burr Elementary School
In planning the Burr Elementary School in Fairfield, Conn., the school's building committee heeded the words of William Wordsworth: Come forth into the light of things, let nature be your teacher. They selected construction manager Turner Construction Company, New York, and the New York office of A/E firm Skidmore, Owings & Merrill to integrate nature on the heavily wooded 15.
| Aug 11, 2010
Bronze Award: Trenton Daylight/Twilight High School Trenton, N.J.
The story of the Trenton Daylight/Twilight High School is one of renewal and rebirth—both of the classic buildings that symbolize the city's past and the youth that represent its future. The $39 million, 101,000-sf urban infill project locates the high school—which serves recent dropouts and students who are at risk of dropping out—within three existing vacant buildings.
| Aug 11, 2010
New school designs don't go by the book
America needs more schools. Forty-five percent of the nation's elementary, middle, and high schools were built between 1950 and 1969, according market research firm ZweigWhite, Natick, Mass. Yet even as the stock of K-12 schools ages and declines, school enrollments continue to climb. The National Center for Education Statistics predicts that enrollment in public K-12 schools will keep rising...
| Aug 11, 2010
Bronze Award: Lincoln High School Tacoma, Wash.
Lincoln High School in Tacoma, Wash., was built in 1913 and spent nearly a century morphing into a patchwork of outdated and confusing additions. A few years ago, the Tacoma School District picked Lincoln High School, dubbed “Old Main,” to be the first high school in the district to be part of its newly launched Small Learning Communities program.
| Aug 11, 2010
Great Solutions: Technology
19. Hybrid Geothermal Technology The team at Stantec saved $800,000 in construction costs by embedding geothermal piping into the structural piles at the WestJet office complex in Calgary, Alb., rather than drilling boreholes adjacent to the building site, which is the standard approach. Regular geothermal installation would have required about 200 boreholes, each about four-inches in diameter ...
| Aug 11, 2010
Cronkite Communication School Speaks to Phoenix Redevelopment
The city of Phoenix has sprawling suburbs, but its outward expansion caused the downtown core to stagnate—a problem not uncommon to other major metropolitan areas. Reviving the city became a hotbed issue for Mayor Phil Gordon, who envisioned a vibrant downtown that offered opportunities for living, working, learning, and playing.
| Aug 11, 2010
Bronze Award: Hawthorne Elementary School, Elmhurst, Ill.
At 121 years, Hawthorne School is the oldest elementary school building in the Elmhurst, Ill., school district and a source of pride for the community. Unfortunately, decades of modifications and short-sighted planning had rendered it dysfunctional in terms of modern educational delivery. At the same time, increasing enrollment was leading to overcrowding, with the result that the library, for ...
| Aug 11, 2010
Platinum Award: Reviving Oakland's Uptown Showstopper
The story of the Fox Oakland Theater is like that of so many movie palaces of the early 20th century. Built in 1928 based on a Middle Eastern-influenced design by architect Charles Peter Weeks and engineer William Peyton Day, the 3,400-seat cinema flourished until the mid-1960s, when the trend toward smaller multiplex theaters took its toll on the Fox Oakland.
