2015 sets new record for industry M&A
Mechanical, electrical, plumbing, and fire protection (MEP/FP) engineering firms active among wave of dealmaking.
On the heels of 2014's record-setting year for mergers and acquisitions (M&A) in the architectural and engineering (A/E) industry, 2015 set a new bar for dealmaking among A/E firms. Morrissey Goodale tracked 234 domestic M&A transactions in 2015, which represents a more than 5% increase over 2014 (see Figure 1). Consulting-Specifying Engineer's 2016 MEP Giants were a major part of the deal activity, with 21% of the Giants reporting making an acquisition in 2015, matching the same total reported in 2014.
MEP Giants accelerate growth through M&A
With firms seeking to capitalize on a strong economy, particularly in commercial development, health care, education, and science and technology, many of the MEP Giants looked to M&A in 2015 as a means of accelerating growth. Perhaps most notable among them was the merger of KJWW Engineering Consultants (Rock Island, Ill.) and TTG Engineers (Pasadena, Calif.) to form IMEG/KJWW/TTG, this year's No. 15 MEP Giant. The combination creates a 900-employee workforce spread across 25 national and five international locations and strengthens their position in the health care, higher education, government, entertainment, industrial, and transportation markets. The merger of two similarly sized firms in the A/E industry is a somewhat rare occurrence, but KJWW and TTG seem to have found a good fit between their businesses that creates a broader platform with additional depth and diversification.
MEP Giant No. 5, Stantec (Edmonton, Alberta), was among the most active acquirers last year, striking six deals in 2015. Notable among them were the acquisitions of power and electrical engineering firm VI Engineering (Houston), and electrical engineering, technology-design consulting, audio/video consulting, and acoustical and lighting design firm Sparling (Lynnwood, Wash.). Stantec's wave of dealmaking has continued into 2016 with the acquisitions of VOA Associates (Chicago), Bury (Austin, Texas), and MWH Global (Broomfield, Colo.).
No. 6 JENSEN HUGHES (Baltimore) was also busy last year, announcing four transactions in 2015: Nexus Technical Service Corp. (Oakbrook Terrace, Ill.), Sereca Consulting (Richmond, British Columbia), Erin Engineering and Research (Walnut Creek, Calif.), and Randal Brown & Associates Engineering (RBA; Toronto). Then in December, JENSEN HUGHES announced that middle-market private equity firm, Gryphon Investors (San Francisco) completed a majority investment in JENSEN HUGHES. Since then, the firm has continued to grow through M&A, announcing three more transactions so far in 2016, including Aon Fire Protection and Engineering. The investment community also took an interest in MEP Giant No. 11 IPS-Integrated Project Services (Blue Bell, Pa.) when Alleghany Capital Corp. announced that it acquired a majority interest in IPS.
Salas O'Brien, this year's No. 29 MEP Giant, struck two deals in 2015, acquiring two Atlanta-based firms: KLG Consulting Engineers, a mechanical and electrical engineering firm known for serving the commercial, hospitality, educational, health care, governmental, and retail markets, and HESM&A Inc., a provider of mechanical, electrical, and fire suppression engineering as well as commissioning services. In May 2016, Salas O'Brien continued its expansion in Georgia with the addition of Minick Engineering, an MEP firm based in Tucker.
Other notable transactions within the MEP space included:
- No. 89 LaBella Associates' (Rochester, N.Y.) acquisition of DPC Engineering (Elmira Heights, N.Y.), a specialized HVAC and electrical-systems design firm.
- TMP Consulting Engineers' (Boston) merger with No. 51 Bala Consulting Engineers (King of Prussia, Pa.), which allowed the firms to broaden their range of engineering services and market sectors.
- No. 94 RTM Engineering Consultants' (South Barrington, Ill.) acquisition of Milan Engineering (Winter Park, Fla.), a consulting firm that provides comprehensive Mechanical, electrical, plumbing, and fire protection (MEP/FP) engineering services to public- and private-sector clients.
- No. 100 Ross & Baruzzini's (St. Louis) acquisition of Ducibella Venter & Santore (Hamden, Conn.), a leader in security consulting for financial institutions and educational, commercial, and museum facilities.
MEP Giants round out building design, construction services
Quite a few of the 2016 MEP Giants focused on deals that expanded other aspects of their building design services including architecture, interiors, and structural engineering. Some of the notable architectural deals among the Giants included No. 7 HDR (Omaha, Neb.) acquiring one of western Canada's leading architectural practices in CEI Architecture (Vancouver, British Columbia); Sorg Architects' (Washington, D.C.) merger into No. 19 DLR Group (Minneapolis) to form DLR Group | Sorg; and Page (Washington, D.C.), this year's No. 25 Giant, adding Strategic Science & Technology Planners (Arlington, Va.), a laboratory-planning and -design architecture firm. In addition, No. 36 HGA Architects and Engineers (Minneapolis) acquired ReelGrobman (San Jose, Calif.), a design firm that provides architecture and interior design services, and No. 67 Greenman-Pedersen (Babylon, N.Y.) acquired ORW Landscape Architects & Planners (White River Junction, Vt.).
This year's No. 32 MEP Giant, Dewberry (Fairfax, Va.), extended its reach into Texas with the acquisition of Houston-based Wilson Architectural Group, a nearly 40-person architectural firm with a portfolio of health care, corporate and commercial, industrial, sports and recreation, laboratories, and civic buildings in Houston and throughout Texas.
Overall, Texas was the hottest state for industry M&A last year, with 31 sales of Texas-based A/E firms in 2015. California came in a close second with 25, and other states that saw 10 or more deals last year include Illinois, New York, North Carolina, and Florida (see Figure 2).
Other Giants sought to round out their program-management, structural, and commissioning capabilities. MEP Giant No. 45 STV (New York City) acquired Diversified Project Management (DPM; Newton, Mass.), a provider of owner's project management services; No. 4 WSP | Parsons Brinckerhoff (New York City) acquired Halvorson and Partners (Chicago), a provider of structural engineering services for developers, private owners, and institutions worldwide; and No. 34 RMF Engineering (Baltimore) acquired CxAnalytics (Williamsburg, Va.), a commissioning firm that serves federal, state, and local governments as well as the higher education and health care markets.
Dealmaking slower, but still strong, so far in 2016
Through May 2016, Morrissey Goodale tracked 88 domestic M&A transactions, as compared with 104 through the first 5 months of 2015. While the decline of more than 15% is considerable, if the pace of dealmaking remains, we still expect more than 200 sales of U.S.-based A/E firms this year. Both buyers and sellers appear to be selective in the opportunities they are pursuing, with buyers aiming to stick closely to their strategic plans and court firms that align with their targeted markets, services, and geographies. Many sellers are coming off record performance in 2015 and are seeking deals with strong valuations commensurate with strong profitability. This dynamic appears to have slowed the overall pace of consolidation, but we anticipate that the wave of acquisitions will continue for the remainder of the year, albeit not to the degree of 2015's record-setting numbers.
Neil Churman is a principal consultant at Morrissey Goodale LLC, a management, consulting, and research firm that exclusively serves the architecture, engineering, construction (AEC) industry. Based in the firm's Houston office, Churman works with AEC firms to deliver M&A, consulting, and advisory solutions. Morrissey Goodale is a CFE Media content partner.