In 2022, mergers and acquisitions continued to flourish as a growth strategy throughout the AEC industry.
In recent years, the AEC industry has been recognized for its large amount of consolidation and M&A activity. With the infrastructure bill presented in 2021 and the unprecedented amount of backlog AEC firms held after the halting of projects in 2020, mergers and acquisitions continue to flourish throughout our industry. With 346 transactions in 2019, 377 in 2020, and 577 in 2021, the AEC industry continues to show impressive growth with more than 552 transactions in 2022. Of the transactions, 354 were U.S. based and 198 were international. This is only a 4 percent decrease from the prior year, but when you look at the historic number of transactions year-after-year, the activity level remained relatively the same. Zweig Group data indicates that M&A continues to be a suitable growth strategy for firms looking to grow their firm and enhance their competitive position.
We gathered and analyzed all of the available data from the 552 acquisitions that occurred in our industry over the last year to report an industry outlook and share our experience on the biggest trends that we saw in 2022:
- Sellers by discipline. Buyers continue to pursue pure-play engineering, architecture, and environmental firms to further strengthen certain service offerings or to establish a stronger market presence in specific markets. We found that 184 engineering firms, 81 architecture firms, and 93 environmental firms were acquired in 2022. However, this does not take into account that 80 additional transactions were multi-disciplined firms that consist of architecture and engineering, multi-disciplined engineering, and full-service firms. These types of firms were more commonly targeted by bigger corporations – with an average FTE count of 3,000. We also found that there were an additional 114 firms acquired that are not necessarily considered engineering or architecture firms, but technology focused firms or consultancies. With the world entering a transformative era of ground-breaking technological changes, we see the big players in our industry expanding their technological capabilities.
- Services and markets. As for the main service of acquired firms, we continue to see that firms offering civil engineering, environmental services, or architecture services are most sought-after. Each of these disciplines amount to roughly 18 percent of sellers; or more than 54 percent of the total sellers. However, many of the main markets for these firms were industry agnostic – meaning they had no main market and operated in a variety of markets. The most prevalent markets that these firms operated in were commercial and residential (21 percent), government (14 percent), education (12 percent), and water/wastewater (8 percent). The data indicates that there were a great deal of strategic acquisitions in terms of services and markets even though the industry’s most active buyers are still prioritizing water/wastewater, transportation, and environmental firms in their acquisition efforts for 2023.
- Size and geography. Prior years have shown us that there are certain geographic hotspots where buyers are more interested in acquiring. These hotspots include California, Florida, and Texas. Unsurprisingly, these states were still the hotspots in 2022. To break it down, 45 firms were acquired in California, 43 in Florida, and 37 in Texas. There were 358 total firms acquired in the United States, meaning that these three states account for just over 35 percent of total U.S. based transactions. Historically, the median size of the acquired firms has been relatively small (30 employees in 2021, 25 employees in 2020, and 20 employees in 2019) and we saw this trend continue in 2022 with the median size being 26 employees. It gets interesting on the buyer side, where the median size declined from 700 in 2021 to 560 in 2022. The median size for buyers from 2014 to 2020 was 460 employees, but that was when the number of transactions each year ranged from 340 to 390. With 2021 being a massive year in the volume of transactions, we can interpret that there were more and bigger players utilizing mergers and acquisitions as their growth strategy starting in 2021.
- Private equity involvement. Similarly to 2021, we continued to see private equity involvement in our industry in 2022. Private equity buyers in 2022 accounted for 30 transactions, compared to 37 transactions in 2021. However, the number of companies acquired as a platform company and private equity backed transactions increased by more than 20 percent. We’re seeing private equity backed AEC firms utilizing this backing to grow in terms of both size and service offerings. The firms utilizing this strategy include, but are certainly not limited to, Trilon Group (seven acquisitions), Ardurra Group (five acquisitions), and Global Infrastructure Solutions (four acquisitions). Nevertheless, this does not take away from firms that were active buyers in our industry without private equity backing, including RSK Group (19 acquisitions), WSP Global (eight acquisitions), and Salas O’Brien (seven acquisitions).
The trends above are certainly not the only one to come out of the 552 total acquisitions that occurred in the AEC industry during 2022, but they were some of the most noticeable. We’ll continue to gather M&A activity data this year and report on the trends and noticeable investments from the players of our industry. To learn more about Zweig Group’s M&A advisory services, click here.
Adrian De la Garza, CM&AA is a senior analyst within Zwieg Group’s M&A advisory team. Contact him at adelagarza@zweiggroup.com.
