AEC M&A activity: 2012 first six months in review
Domestic M&A activity rebounds to 2011 pace: Domestic M&A activity rebounded in the second quarter, bringing the pace for the first half of the year in line with the prior years (Graph 1). However, the 88 deals announced in the U.S. through the end of June essentially reflect a pace of consolidation that is stuck at 2009 levels— which was the lowest point on record. This should cause concern about the strength of the economic recovery in the industry.
The big question is whether the momentum of Q2 (after a very slow Q1) will continue through the second half of the year. In large part that will be determined by how attractive the publicly-traded firms view the U.S. marketplace. As of late, the publics are tending to view overseas markets as relatively more attractive.
With six months to go in the year, we anticipate domestic M&A activity to be in the 175 to 195 deal range.
Domestic M&A activity clustered in key 12 states: Regionally, California and Texas registered the highest number of deals (nine in each state) for the first half of the year (Graph 2). Twelve states, including Texas and California represented almost 7 in 10 of all domestic deals during the first half of the year. Of note are the six deals in Florida— a sign that that market has likely hit and moved beyond the bottom.
Canadian AEC M&A market continues to sizzle: Although the Canadian AEC market is just 10% the size of that in the U.S., consolidation in Canada continued at a blistering pace during the first half of the year. We recorded twenty-three deals there through end of June (Graph 3). This torrid pace was driven in large part by the attractiveness of the booming energy sector and robust infrastructure markets in Western and Eastern Canada. Non-Canadian firms are lining up to get in on the action.
Domestic inter-state M&A activity remains at defensive levels: For the first six months of the year, domestic inter-state deal-making activity remained in a relatively defensive posture with just 56% of deals occurring across state lines (Graph 4). This was down from 58% of domestic deals for the same period in 2011. We consider a pace of over 66% as representing a clear growth-oriented deal making environment.
U.S. buyers continue to look to international growth: The first half of the year saw U.S. buyers announce eleven overseas acquisitions on pace with last year— a distinctly higher number than prior years (Graph 5). This in indicative of what we continue to hear from the largest firms in the industry — that more and more they see overseas as yielding greater opportunities for growth until the U.S. Political and economic outlook has greater clarity.
Conversely, U.S. firm sales to international buyers continued their decline from the highs of 2007 and 2008. Just five U.S. firms sold to non-U.S. buyers in the first six months of the year continuing a downward trend. While overseas buyers still consider the U.S. market attractive, they too see their M&A priorities as being in the rich energy and natural resources markets of Canada, South America, MENA, South Africa, Australia and New Zealand.
Publicly-traded firms still keeping power dry: Domestically, less than one in ten deals involved a publicly-traded buyer (Graph 6). This represents the lowest level of activity on the part of publics in the first half of the year since the dark days of 2009.
Globally, publicly-traded firms were also “under-represented” compared to historical performance. Through the end of June, publics accounted for just over one-in-four deals, their most muted performance since the first half of 2007 (Graph 7).
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