The AEC industry continues to surge, presenting unparalleled
opportunities for growth and innovation. At Zweig Group, our
mission to Elevate the Industry™ drives us to equip leaders with
the insights and strategies needed to navigate this dynamic
landscape. It is with great enthusiasm that we announce the
2024
M&A Next Symposium in Tampa Bay, Florida, on
September 17. This
one-day symposium focuses on firm transitions and acquisitions.
Where other events are focused on creating a forum for buyers and
sellers to engage, M&A Next is focused on higher level business
strategies and approaches – shaped by unique sessions for buyers
and sellers. The event will be an experience that helps attendees
design their future as a buyer or seller. We will kick this event
off with the most experienced legal team in the AEC industry –
George Christaduolo and Peter Grupp. The pair will take us through
a legacy that celebrates the AEC industry’s past while looking
forward to the future. The schedule for the full-day M&A Next
event the following day is filled to the brim with insightful
keynotes, engaging panels, and focused breakouts – providing high
ROI for a one-day event. The M&A Next Symposium is sponsored by
Ames & Gough and Unanet.
Learn more or register
here.
Mergers and acquisitions have become increasingly critical in
the AEC industry, and understanding the latest trends and
strategies is vital for staying ahead. Zweig Group tracks every
M&A transaction that takes place in the architecture,
engineering, and construction (AEC) industry and reports on them on
a weekly basis. This process allows us to stay up to date with the
latest M&A trends in the AEC industry and report our findings
to you. The following report details some of the biggest trends and
movements regarding M&A activity in the AEC industry as of the
end of Q2 2024.
Overview of AEC deal activity in 2024
After hitting a low in Q3 of 2023, AEC deal volume has shown a
strong resurgence in the first half of 2024. As of June 27, there
have been 324 closed transactions, reflecting the momentum seen at
the beginning of 2023. The first quarters of both years recorded
similar numbers of transactions. However, Q2 2024 experienced a 5
percent increase compared to Q2 2023, with 153 closed deals versus
145. The ideal target size for acquisitions has also grown, with
the average size of sellers' firms reaching 30 FTEs year-to-date,
slightly higher than the averages of 25 and 26 FTEs in the previous
two years.
Some of the most active buyers of 2024 have been Salas
O’Brien, NV5, SLR, and Verdantas, each with five
transactions to date. Montrose Environmental
Group, Atwell, Bowman Consulting Group, The SOCOTEC
Group, IMEG, LJA, WSP, and Michael Baker
International are all close behind, each completing four
transactions thus far. These serial buyers are a good indicator for
the AEC M&A market as their continued activity reflects
confidence in market conditions and the strategic value of
acquisitions. Large firms are leveraging acquisitions to expand
their service offerings, geographic reach, and technical
capabilities. This trend not only demonstrates the strength and
resilience of the AEC sector but also signals robust growth
opportunities for firms of all sizes looking to enhance their
market position through strategic partnerships and
acquisitions.
High demand for engineering services amid regulatory and
infrastructure initiatives
To date, 102 sellers have been single-discipline engineering
firms, with civil engineering and environmental services emerging
as the most sought-after service lines, accounting for 24 percent
and 17 percent of all deals through Q2, respectively. This high
demand is largely driven by ongoing needs in water/wastewater,
transportation, and infrastructure projects, fueled by the
Infrastructure Investment and Jobs Act (IIJA) of 2021, which is set
to disburse approximately $350 billion through 2026.
Another significant driver is the Biden administration's
announcement in April 2024, alongside the EPA, of the first-ever
national legally enforceable drinking water standard for PFAs. This
initiative includes an additional $1 billion to assist states in
funding PFA detection and treatment systems to meet the new
standard. This funding is part of the $9 billion allocated through
Biden’s Bipartisan Infrastructure Law to address PFAs and other
emerging contaminants in drinking water. Additionally, $12 billion
supporting general drinking water investments is included in
the Justice40 initiative, which ensures that 40 percent of the
overall benefits of certain federal investments flow to
disadvantaged communities.
Private equity’s continued appetite in AEC firms
Continuing from 2023, the resurgence of private equity in the
AEC industry continues to be a notable trend. In Q2, private
equity-backed firms or PE buyers accounted for 36 percent of all
deals, indicating strong interest in direct investment within the
sector. While there is optimism surrounding 2024 M&A activity,
expectations have tempered. The year began with robust activity,
mirroring the start of 2023. However, Q2 saw a slight pullback in
total activity due to ongoing uncertainties around interest rates
and geopolitical factors.
Geography
Geography in the AEC industry plays a pivotal role as many
buyers seek out firms in key locations. Once again, leading the
pack are California, Florida, and Texas, accounting for 21 percent
of total deals. Compared to Q2 of 2023, California has overtaken
Texas and Florida to retake the top spot as the most popular
location. This year, the distribution among the top three states is
more balanced, whereas last year, Florida dominated the start of
the year with 30 deals, compared to the 19 and 18 transactions in
Texas and California, respectively.
Additionally, there has been a slight shift toward a broader
geographic focus, with international deals gaining traction. The
proportion of international transactions has increased by 1.9
percent, moving from 32.4 percent of all deals through Q2 2023 to
34.3 percent year-to-date. This trend highlights the growing
importance of global market expansion for larger AEC firms, as they
seek to diversify their portfolios and tap into emerging markets.
The increased international activity also underscores the strategic
emphasis on building a robust global presence to mitigate regional
market risks and capitalize on cross-border opportunities.
Outlook
While staying current with industry trends is crucial, AEC
leaders must go beyond mere observation. They need to proactively
navigate the dynamic landscape, discerning myriad changes to
identify which trends align with their strategic objectives. This
ability to filter out the noise and focus on relevant shifts is
essential for making informed decisions that will propel their
businesses forward. A survey conducted by PwC showed that
82 percent of U.S. CEOs said the average company in their industry
will not be in business in 10 years if it fails to change its
current business model.
With the U.S. election rapidly approaching, the Supreme Court's
recent decision to overturn the Chevron doctrine, thereby weakening
federal environmental protections, and the Federal Reserve scaling
back to only one planned rate cut in 2024, there is no shortage of
externalities for business leaders to monitor. While these
developments present challenges, the overall sentiment in the
M&A landscape remains positive.
To navigate these complexities, it is essential for business
leaders to develop a robust and well-thought-out strategic plan.
Ensuring that their M&A strategy aligns with this plan can
enable them to leverage acquisitions as a critical tool in their
arsenal, particularly in turbulent market conditions. By staying
agile and responsive to external changes, firms can identify and
capitalize on opportunities that enhance their competitive
positioning and drive growth.
Despite the concerns over regulatory shifts, economic policy,
and political uncertainties, a strategic approach to M&A can
provide a pathway for stability and expansion. Business leaders who
prioritize alignment between their M&A activities and
overarching strategic goals will be better equipped to manage risks
and seize market opportunities, ultimately contributing to a
resilient and thriving enterprise.
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About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the
industry leader and premiere authority in AEC firm management and
marketing, the go-to source for data and research, and the leading
provider of customized learning and training. Zweig Group exists to
help AEC firms succeed in a complicated and challenging marketplace
through services that include Mergers & Acquisitions, Strategic
Planning, Valuation, Executive Search, Board of Director Services,
Ownership Transition, Marketing & Branding, and Business
Development Training. The firm has offices in Dallas and
Fayetteville, Arkansas. Subscribe to the Zweig Group's and receive
weekly insights delivered straight to your inbox.
.
Sara Parkman
Zweig Group
800.466.6275
sparkman@zweiggroup.com