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Business of Engineering

A/E industry mergers and acquisitions rebounding

Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they discuss how the M&A industry has recovered.

By Morrissey Goodale August 24, 2020
High-rise commercial buildings in Chicago. Courtesy: CFE Media

Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they discuss how the M&A industry has recovered.

Strong merger and acquisition month for A/E industry

The late summer has seen a marked uptick in industry deal-making. In August alone, we’ve reported on 24 design and environmental deals in the U.S. This is by far the highest monthly rate of activity that we’ve seen since the start of the pandemic.

The M&A market essentially froze over in the Spring. March, April, and May combined saw a total of 43 deals – down 51% over 2019. The uncertainty during the first three months of pandemic put at least half of the national deals that were in the pipeline on hold.

The pace of industry consolidation picked up somewhat during June and July. We reported on 33 transactions in the early summer months, down 38% over the same period the year before. Deals that had been “paused” in the Spring were brought back on-line as buyers and sellers adjusted to the industry’s new reality.

However, what we are seeing in August represents a dramatic step function increase in M&A activity. In fact, this month is shaping up to be the strongest August on record for deal announcements. After lagging last year’s record pace by some 19% through the first five months of the pandemic, year-over-year M&A activity is now down just 12% – largely driven by August’s torrid pace of transactions.

The deals announced this month herald the New Reality for industry M&A. Most of these deals were NOT in the pipeline in the spring when the pandemic hit. These are new transactions consummated by buyers and sellers making business decisions to take advantage of opportunities presented by the industry’s New Reality.

These August deals also represent the New Reality for industry deal-making. There are fewer on-site face-to-face meetings, less physical due diligence, and fewer travel-related expenses. In their place are more focused, direct, and structured video calls between management teams at every stage of courtship and integration, more virtual data rooms, more legal and accounting expertise to navigate PPP loan hangovers, and more due diligence around safe work environments in compliance with state and local COVID regulations.

The late summer deals emphatically reinforce the trends in industry consolidation. August has not only has served to amp up the pace of deal-making to 2019’s record level, but it has also provided further evidence of the major factors at play, with the following two particularly standing out:

First, private equity accounts for over one-in-five transactions. The inescapable truth is that the industry is being remade – from top to bottom – by private capital. Over 7% of the ENR Top 500 firms are backed by private equity. A late summer example was the announcement of “a significant investment” in PBK Architects (ENR #134) by DC Capital Partners.

Second, the median deal size continues to be small at 15 employees. Why so small?  It has to do with the law of averages, for one thing. The industry is largely comprised of smaller firms, so there is proportionately more activity in that size range. It also has to do with the dearth of talent in our industry. Even though national unemployment is at record levels it’s STILL close to impossible to quickly recruit good design or environmental talent. So, more and more firms are turning to small acquisitions to bring on the talent that they need – fast.

This article originally appeared on Morrissey Goodale’s website. Morrissey Goodale is a CFE Media content partner.


Morrissey Goodale