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
| Jan 6, 2012
Gensler unveils restoration and expansion of Houston's Julia Ideson building
The "new" building will serve as a repository of Houston memorabilia and rare archival material as well as the city's official reception space and a venue for exhibits, meetings and other special events.
| Jan 6, 2012
New Walgreen's represents an architectural departure
The structure's exterior is a major departure from the corporate image of a traditional Walgreens design.
| Jan 6, 2012
Summit Design+Build completes Park Place in Illinois
Summit was responsible for the complete gut and renovation of the former auto repair shop which required the partial demolition of the existing building, while maintaining the integrity of the original 100 year-old structure, and significant re-grading and landscaping of the site.
| Jan 4, 2012
Siemens acquires Pace Global Energy Services
Acquisition will enhance portfolio with new energy consulting and management services.
| Jan 4, 2012
Shawmut Design & Construction awarded dorm renovations at Brown University
Construction is scheduled to begin in June 2012, and will be completed by December 2012.
| Jan 4, 2012
Skanska acquires Industrial Contractors
Industrial Contractors Inc. is a contractor in the commercial, industrial and power markets of the Midwest. The company employs 2,400 people and in 2011 the revenues are estimated to be approximately $500 million.
| Jan 4, 2012
HDR to design North America’s first fully digital hospital
Humber River is the first hospital in North America to fully integrate and automate all of its processes; everything is done digitally.
| Jan 4, 2012
New LEED Silver complex provides space for education and research
The academic-style facility supports education/training and research functions, and contains classrooms, auditoriums, laboratories, administrative offices and library facilities, as well as spaces for operating highly sophisticated training equipment.
| Jan 3, 2012
Gilbane awarded $88M Contract for Ohio elementary school construction
The new award, which comprises the construction of five new elementary schools and demolition of 11 older facilities, is the latest K-12 building program managed by Gilbane for the Ohio School Facilities Commission since 1998.
| Jan 3, 2012
AIA's ABI November Index reaches 52.0
The Architecture Billings Index (ABI) reached its first positive mark since August.
