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Deal-making by MEP Giants takes a breather

After a very active 2016, fewer mechanical, electrical, plumbing, and fire protection (MEP/FP) engineering firms made acquisitions in 2017, matching the downward trend seen in the broader engineering industry. However, 2018 is on track to becoming a record-setting year.

By Nick Belitz, Morrissey Goodale, Denver
08/09/2018
Percentage of deals with private equity buyers

Figure 1: Last year posted the lowest overall deal count in 4 years; fewer than 300 transactions were completed in 2013. All graphics courtesy: Morrissey Goodale LLC  In terms of corporate marriages in the overall architecture, engineering, construction (AEC) industry, 2017 turned out to be an extension of a trend we began to observe in 2016. That year, the number of transactions in the sector declined modestly after back-to-back record years in 2014 and 2015. Also in 2016, the MEP Giants stepped up their deal-making, with 23% of the largest mechanical, electrical, plumbing, and fire protection (MEP/FP) engineering firms reporting a transaction. In 2017, the engineering industry at large slowed the pace of what had been a feverish tempo of consolidation.

Morrissey Goodale tracked 309 AEC deals globally in 2017, which was down noticeably from the 349 deals logged in 2016. Last year also posted the lowest overall deal count in 4 years; fewer than 300 transactions were consummated in 2013 (see Figure 1). Consulting-Specifying Engineer's 2018 MEP Giants followed the trend and reduced their own deal involvement, with 16% of the industry-leading group reporting a transaction to either acquire another firm or an agreement to sell itself to a larger buyer. Again, we must look 4 years back in time before we see a similar level of activity; in 2013, 16% of the MEP Giants made an acquisition.

Domestic M&A more steady

As global mergers and acquisitions (M&A) activity in the global AEC industry fell, M&A in the U.S. held its own, decreasing slightly from the 216 transactions tracked in 2016 to 211 deals in 2017, but noticeably down from the high-water mark of 240 deals observed in 2015 (see Figure 2).

While our firm would expect the market to take something of a pause following multiple years of record activity, it is interesting to note deal-making in the domestic U.S. remained largely at the same level of activity as the year before, while the global market showed a more pronounced slowdown. We believe this is due to the greater expectations for economic growth in the U.S. relative to the rest of the world.

Increased building translates to more spending in the horizontal and vertical building sectors across the country, which in turn will result in greater opportunities for engineering firms large and small. These expectations for more projects and the growth in revenue and profits they represent drove sustained interest in U.S. engineering firms in 2017 and, we believe, will continue to do so in the current economic expansion.

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