Eight mid-year merger and acquisition updates

It’s that time of the year again. With Memorial Day in the rear-view mirror, the corporate development folks running deals for acquirers are headed to the shore (or the mountains) for some well-deserved R&R.

Chilling by their Solo Stoves, they’ll give themselves a pat on the back for the acquisitions they’ve helped their firms make year-to-date. Grilling by the pool, they’ll rue the deals that got away. And gazing up at the stars through the clear panels of their luxury glamping domes, they’ll be planning how to close out their “must-have” deals in the months remaining in 2024.

Meanwhile (and maybe even unwittingly on the same shore or mountain), sellers will be diligently gathering and compiling all of the digital materials and reports they will need to realize a smooth sale of their firms by the end of the year.

By all accounts, it will be yet another busy second half of the year for both serious buyers/investors and motivated sellers. Let’s take a look at the state of the 2024 M&A market that they will both be diving into.

1. Busy, busy, busy: OK, with that lead-in you’d be forgiven for thinking 2024 is seeing record deal-making activity. Well, you’d be wrong, but not by much. We tracked 204 U.S. transactions through the end of May—essentially on pace with last year. And while that’s a decline of some 13% over the same period in record-smashing 2022, we’re solidly on track to see a third consecutive year of 450 plus/minus deals. Why is that notable? At that level, we’re squarely in a period of time where meaningful single-digit percentages of the industry are being consolidated annually. We’re right in the middle of “peak consolidation” territory. Frankly, there’s never been a better time to sell your firm.

2. Super-sized deals: For as long as we have been keeping records, the median acquirer size has never exceeded $98 million. And the median seller size has consistently ranged between gross revenues of $2.5 million and $3.5 million. Well, the first five months of this year have seen those norms disrupted. The median size acquirer has jumped to $147 million, while the median seller size has popped to $4.25 million. The first change is easier to explain. The bigger buyers are getting more active. It’s harder to say why the seller size has increased. One theory is that buyers are reallocating their limited M&A deal-making resources to effect relatively more, larger “needle-moving” deals. Whatever the reason, it’s bad news for smaller firms that have been shut out of deal-making.

3. Capitalization churn: Employee-owned acquirers accounted for just over half (106) of the deals completed through the first five months of the year. Another 40% (82) were completed by either private equity-backed operating firms or were recapitalizations by private equity groups. Publicly traded acquirers made 16 acquisitions over the same period. These capitalization categories line up pretty closely to the buyer profiles that we have seen over the past three years.

4. More private equity at the top: Fourteen ENR Top 500 design firms have sold or recapitalized in 2024. If this pace keeps up, it will be a record year of consolidation among the nation’s leading designers. Continuing a trend that we have been tracking since 2018, the vast majority (85%) of those top designers either sold to a private equity-sponsored acquirer or were recapitalized as a private equity-backed platform.

5. The big three: Almost one-third of all deals this year have taken place in California (24), Florida (23), and Texas (19). This continues the trend that we have tracked for a number of years, with these three states accounting for between 30% and 35% of U.S. consolidation. Interestingly the number one and number three spots this year are reversed compared with last year—when Texas was the most active state.

6. Big talk, less action: Despite continued interest from overseas acquirers in the U.S. market, just 5% of transactions year-to-date involve an overseas acquirer. This is up from 3% last year. The last time overseas buyers played a significant role in U.S. industry consolidation was back in 2017, when they accounted for 10% of acquisitions.

7. Movers and shakers keep doing what they do: Way back in January, we wrote about “Nine Movers and Shakers to Watch in 2024.” These were nine firms that we believed would make some of the most impressive and meaningful acquisitions in the industry this year. And sure enough, they’ve continued their impressive growth through acquisitions. Of the nine firms, eight have made multiple acquisitions year-to-date: IMEG (5), NV5 Global (5), Verdantas (5), Salas O’Brien (4), Bowman Consulting Group (4), Atwell (2), SAM (2) and RMA Companies (2).

8. Excellence in acquisitive growth awards: We’re on a mission to improve how consolidation happens in the industry. And as part of that, we’re recognizing those acquirers that are making it happen. Bowman Consulting Group (ENR #78) is this year’s recipient of the industry’s Most Proficient and Prolific Acquirer Award. And Trinity Consultants is the recipient of the 2024 M&A Best Practices Award—which will be presented this week at our Western States M&A and Business Symposium in Las Vegas. The third award in the annual Excellence in Acquisitive Growth Awards Series is the Best Post-Transaction Performance Award, which will be presented at the Texas and the South M&A and Business Symposium at the five-star Post Oak Hotel at Uptown Houston in October.

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