2014 biggest year yet for mergers, acquisitions
Mechanical, electrical, plumbing (MEP), and fire protection engineering firms accelerate dealmaking as industry continues to consolidate at unprecedented pace.
Last year was a remarkable year for mergers and acquisitions (M&A) in the architectural and engineering (A/E) industry. Morrissey Goodale tracked 203 domestic deals in 2014—a new record for the industry—and a nearly 13% increase over the 180 domestic deals in 2013. Not only were the number of deals at record levels, but some of the largest deals in the history of our industry took place in 2014. M&A among Consulting-Specifying Engineer’s MEP Giants contributed to the flurry of activity. Twenty-one of this year’s MEP Giants reported acquiring another firm in 2014. This represents an uptick compared to 16 of the MEP Giants reporting acquisitions in both 2013 and 2012.
Buyers focus on U.S.
The increase in activity among the MEP Giants was part of a broader rise in dealmaking in the A/E industry. The 203 domestic deals tracked in 2014 (deals involving a U.S.-based seller) are an indication that industry firms see the U.S. market as a prime place to invest for the long term (see Figure 1). The U.S. economy has been on a roll, which has led to new project opportunities across a wide range of end markets for MEP firms. Project owners in the public, private, and institutional sectors continue to advance their capital investment programs while the economy is strong.
Cities like Dallas; Raleigh, N.C.; Austin, Texas; and Seattle have been hotbeds for growth, leading MEP firms to seek expansion through key hires or M&A. Houston has been a particularly hot market for MEP deals. What was once an economy driven almost entirely by oil and gas has become a diversified, job-creating machine across a range of sectors including commercial, education, and health care. Four of the MEP Giants acquired a Houston-based firm in 2014, including:
- WSP (Montreal), parent company of MEP Giant No. 6 Parsons Brinckerhoff, acquired MEP and commissioning firm ccrd.
- No. 35 EYP (Albany, N.Y.) and WHR Architects (Houston) merged.
- No. 56 firm Salas O'Brien (San Jose, Calif.) acquired MEP firm Kalmans Marshall Engineering.
- No. 98 KCI Technologies (Sparks, Md.) acquired MEP and energy-services firm Redding Linden Burr (RLB).
Northern California is becoming another hot market for industry dealmaking. Silicon Valley startups have made Northern California a must-be location for industry firms. In 2014, architectural and planning firm BFHL Architects (San Francisco) joined forces with MEP Giant No. 77 Harley Ellis Devereaux (Southfield, Mich.). So far in 2015, two other MEP Giants announced deals in the area with No. 32 HGA Architects and Engineers (Minneapolis) acquiring architectural- and interior design firm ReelGrobman (San Jose, Calif.), and No. 13 JENSEN HUGHES (Baltimore) and announcing a merger agreement with nuclear-safety and -reliability consulting firm Erin Engineering and Research (Walnut Creek, Calif.).
Last year was like no other year when it came to dealmaking on a monumental scale. The highest-profile among them was perhaps MEP Giant No. 3 AECOM’s (Los Angeles) acquisition of URS Corp. (San Francisco). The deal created a company with more than 95,000 employees in 150 countries worldwide and contributed to an unprecedented level of industry consolidation. Not far behind was WSP’s (Montreal) acquisition of 13,500-person Parsons Brinckerhoff, this year’s No. 6 Giant. MEP Giant No. 7, HDR (Omaha, Neb.) also struck a large deal last year, acquiring 600-person Infrastructure Corp. of America (ICA, Brentwood, Tenn.).
Two of the industry’s largest fire protection and life safety engineering firms, The RJA Group (Chicago) and Hughes Associates (Baltimore), formed JENSEN HUGHES, 2014’s No. 13 MEP Giant. The merger created a combined firm of 500 employees and more than $100 million in revenue. The firm has since notched three deals so far in 2015 including merging with Erin Engineering and Research, Sereca Consulting (Richmond, British Columbia), and Randal Brown & Associates Engineering (RBA, Toronto).
MEP Giants add depth, diversify
Quite a few of Consulting-Specifying Engineer’s other MEP Giants expanded through M&A in 2014. No. 23 CannonDesign (Grand Island, N.Y.) joined forces with AEC company Astorino (Pittsburgh). No. 47 Gannett Fleming (Camp Hill, Pa.) acquired the business of Innovative Engineering (York, Pa.), a 24-person electrical design-build contractor doing business as IETC. No. 49 CDM Smith (Cambridge, Mass.) acquired engineering, architectural, and design-build firm The Louis Perry Group (Wadsworth, Ohio). Both Engineering Concepts (ECI; Waukesha, Wis.) and Geiger+Larson (G+L) Engineering (Milwaukee) merged with No. 87 RTM Engineering Consultants (South Barrington, Ill.) last year.
No. 5 Stantec (Edmonton, Alberta) was once again one of the most active acquirers in the industry, notching eight deals last year. Notable among them were the acquisitions of nearly 300-person SHW Group (Dallas), a provider of architectural, interior design, planning, and engineering services to higher education and K-12 clients, and firm Wiley Engineering (Marietta, Ga.), an automation, electrical, and instrumentation engineering firm.
Several of the MEP Giants sought to diversify their services in areas other than MEP. No. 61 The Burns Group (Philadelphia) acquired Orth-Rodgers & Associates Inc. (ORA, Newtown Square, Pa.), an award-winning engineering and planning firm specializing in highway, bridge, and traffic engineering; environmental services; and public involvement. No. 39 STV (New York City) acquired energy-services firm GWD (Denver) and struck another deal in early 2015, acquiring Diversified Project Management (DPM, Newton, Mass.). One of the MEP Giants was acquired last year when global design, architecture, engineering, and planning firm NELSON (Philadelphia) acquired MEP Giant No. 96 Brinjac Engineering (Harrisburg, Pa.) in January.
2015 shaping up to be even bigger
Through May 2015, we tracked 94 domestic deals. If that pace is maintained through the rest of the year, we may see north of 220 deals in 2015. Many industry firms had record performances last year and may lead more owners to seek a sale with their firms’ financial performance at their peak. Buyers will have the financial tools necessary to get deals done, with many firms carrying cash on their balance sheets at unprecedented levels. Publicly traded firms have been boosted by strong stock price performance, which has enabled them to continue to pursue growth. Firms that pulled off large deals last year may take a break from dealmaking as they work to integrate new acquisitions, but there are still plenty of buyers who will contribute to industry consolidation. As long as the U.S. economy keeps heading upward, we expect the trend to continue.
Neil Churman is a principal consultant at Morrissey Goodale LLC, a management consulting and research firm that exclusively serves the AEC industry. Based in the firm’s Houston office, Churman works with AEC firms to deliver consulting and advisory solutions.