The new (public) kids on the block

The involvement by publicly traded AE firms in industry consolidation has been steadily declining since the Great Recession. But that dynamic changed last year with the arrival of some new players on the scene.

1. When the publics ruled: In 2007, one-quarter of industry transactions in the U.S. involved a publicly traded acquirer. Most of these acquisitions were made by industry icons—many refer to them as “mega firms”—that are now in the Billion Dollar Revenue Club such as Stantec, Jacobs, AECOM, Tetra Tech, Arcadis, Genivar (which went on to acquire WSP), Cardno, Fugro, ICF International, SNC-Lavalin, TRC (now privately held), and SAIC. Others, including AMEC and URS, went on to be acquired (by other publicly traded firms) themselves. Much of this activity involved massive consolidation of the transportation, water, power, and energy sectors. Multiple ENR 500 brands were acquired along the way.
2. Decline and fall: From 2008 through 2011, the publics still accounted for on average one-fifth of all transactions annually—but a shift was in the works. Their appetite and their ability to close transactions in the U.S. was beginning to wane. From 2012 through 2016, many shifted their acquisition focus overseas to faster-growing economies. Since 2017, many have found themselves in a dramatically different M&A environment with fierce competition for targets from private equity buyers. The result? While the absolute number of transactions grew each year over the past decade, acquisitions by publicly traded firms steadily declined to a low of just 7% in 2018 and bounced along at that rate through 2020. It appeared that the influence of the publics had reached a steady and much diminished state.
3. Beginning of a renaissance? Then last year, things changed—pretty dramatically. The number of U.S. acquisitions by publicly traded buyers almost doubled from 22 to 41. Publicly traded acquisitions increased from 7% to 10% of all domestic transactions. But the familiar “mega firm” brands were not in the vanguard of this renewed acquisitive growth by the publicly traded cohort. Instead, the charge was led by a couple of relative newcomers to the public capital markets.
4. New players out in front: Two of the three most prolific publicly traded acquirers of U.S. firms last year were Montrose Environmental (Irvine, CA) (NYSE: MEG) and Bowman Consulting Group (Reston, VA) (NASDAQ: BWMN). The former went public in the “pandemic” summer of 2020, the latter in the “what, this pandemic is still here?!” summer of last year. Between them, they made 14 acquisitions in 2021, accounting for almost one-third of all deals in the U.S. by publicly traded firms. Neither are in the Billion Dollar Revenue Club, and I doubt that either are considered by any objective measure to be “mega firms.” However, they—along with NV5 (Hollywood, FL) (NASDAQ: NVEE), which also made six acquisitions in 2021—were by far the most active of the publicly traded buyers.
5. Different era, different game: Sure, the better-known, publicly traded brands were also active in 2021. WSP announced four U.S. acquisitions, Tetra Tech announced three, and Stantec made two. However, it’s the group of new kids in town—such as Atlas Technical Consultants (Austin, TX) (NASDAQ: ATCX), which went public in February 2020 and announced two deals last year—that have been blazing a trail. The acquisitions made by these newcomers tend to be much smaller than those taken on by their “mega” peers. In this way, these acquisitions are very different than those from a decade ago during the period of massive consolidation. These new buyers are not acquiring ENR 500 brands—yet. Instead, they are focused on building scale in particular market niches where their business models and value propositions for M&A targets are differentiated from other acquirers.
6. What’s next? We can expect that this new crew of publicly traded buyers will successfully build scale over the next five years of hyper-consolidation of the AE industry through the acquisition of AE and environmental firms between $5 million and $25 million in revenue. It’s also likely that they will be joined in the market by a handful of new publicly traded firms that emerge from the continuing crop of private equity backed roll-ups that are in play.

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

Original content can be found at www.morrisseygoodale.com.

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