This report details some of the biggest trends and movements regarding M&A activity in the AEC industry as of the end of Q3 2024.
Zweig Group tracks every M&A transaction that takes place in the architecture, engineering, and construction (AEC) industry and reports on them on a weekly basis. This process allows us to stay up to date with the latest M&A trends in the AEC industry and report our findings to you.
An Overview of AEC Deal Activity
As we conclude the third quarter of 2024, Zweig Group is pleased to present a comprehensive analysis of the latest mergers and acquisitions trends within the AEC industry. This report offers a detailed overview of significant market movements, shedding light on the factors driving deal activity and the strategic decisions shaping the sector's future.
The AEC industry has experienced a notable resurgence in M&A activity throughout the first half of the year, with transaction volumes increasing and private equity interest growing. This resurgence follows a period of stagnation in late 2023, underscoring the sector's resilience and adaptability in a dynamic economic landscape.
In this report, we examine key metrics that highlight the high demand for engineering services, particularly in civil and environmental sectors. We explore the effects of regulatory and infrastructure initiatives, such as the Infrastructure Investment and Jobs Act (IIJA) and new national drinking water standards, on M&A activity. We also analyze geographical trends, identifying the most sought-after locations for acquisitions.
Looking ahead, we provide forward-looking forecasts, outlining potential trends and challenges for the remainder of the year. While the market has shown strong growth, uncertainties surrounding the U.S. presidential election, interest rates, and geopolitical factors may influence future deal-making.
The first half of 2024 mirrored previous years in deal activity, with 171 closings in Q1 2023 and 172 in Q1 2024. A slight decline of over 10 percent in Q2 aligned with cyclical trends we've observed. However, Q3 2024 marked a significant deviation, with a 33 percent increase in activity compared to Q3 2023, rising from 129 to 172 closings.
With the uptick in deal activity this year, a significant portion of the momentum has come from serial buyers and large A/E firms backed by private equity. Leading the charge is Verdantas, with eight deals completed through Q3. Following closely are Salas O’Brien, IMEG, SLR, Bowman Consulting Group and Celnor Group, each with seven transactions. Montrose Environmental Group and NV5 have closed six deals, while The SOCOTEC Group, LJA, and WSP have each completed five transactions.
This activity from serial buyers serves as a strong indicator of the AEC M&A market's health, reflecting sustained confidence in the industry's outlook and the strategic importance of consolidation. Large firms are leveraging acquisitions to diversify service offerings, expand geographic footprints, and enhance specialized capabilities. This momentum underscores the sector’s adaptability and growth potential while presenting significant opportunities for firms of all sizes to strengthen their market positions through targeted acquisitions and strategic partnerships.
Key Metrics
“Other” firms represent companies operating in adjacent disciplines to the AEC industry. Company profiles include SaaS or IT services, construction services, geospatial, consulting or other disciplines that do not fall within our primary firm categories.
Surging Demand for Engineering Services Driven by Regulatory and Infrastructure Investments
Through the first three quarters of 2024, the AEC industry has continued to attract increasing levels of capital and interest. Private equity-backed firms and PE funds directly contributed to 40 percent of closed transactions to date, maintaining the upward trend from 2023 (39 percent) as the consolidation of quality firms in key markets becomes more sought after. Not only has the number of deals risen, but the size of the firms involved has grown as well. The median seller size in 2024 is 32 FTEs, up from 25 and 27 in 2023 and 2022, respectively. Similarly, the median FTE size of acquirers has increased, from 605 in 2023 to 837 year-to-date. A key factor behind this trend is the larger firms' growing participation in M&A activity, as previously noted.
Federal spending has been a major external factor driving attention toward engineering firms, particularly with the passage of the Infrastructure Investment and Jobs Act (IIJA) in 2021 and the Inflation Reduction Act (IRA) in 2022. These bills are expected to channel more than $580 billion into the industry from 2022 to 2026. Of this amount, more than 78 percent will be allocated to Surface Transportation, while Energy, Water/Wastewater, Airports, and Ports/Inland Waterways will each receive between 3 percent and 8 percent. These bills have not only added new projects to firms' backlogs but also spurred employment growth, especially in heavy and civil engineering construction. According to a report from the White House, employment in highway, street, and bridge construction averaged 700 new jobs per month from 2011 to 2019. Since the IIJA passed, that number has surged to around 2,800 jobs per month as of 2023.
Private Equity’s Appetite for AEC Firms
Private equity’s involvement in the AEC industry has gained significant momentum, emerging as a driving force in shaping the sector. Through direct investments, acquisitions by platform companies, or deals by PE-backed firms, private equity now accounts for nearly 40 percent of total M&A activity – a slight increase from the previous year. This growing presence is largely driven by PE-backed firms aiming to consolidate the market, expand service offerings, and create long-term value through strategic acquisitions.
Geography
Geography continues to be a defining factor in the AEC industry, particularly in high-demand regions. Texas, California, and Florida remain dominant, accounting for one-fifth of all M&A transactions in 2024, establishing them as the most active markets. Beyond these top three states, a competitive landscape is emerging, with New York, Pennsylvania, Colorado, and New Jersey each recording 15 or more acquisitions this year.
Internationally, cross-border deals are experiencing a resurgence. As of Q3, international transactions represent 35 percent of total deal volume, with 175 deals already completed – just six short of last year’s total of 181. This uptick signals a renewed appetite for global expansion as firms increasingly seek growth opportunities beyond domestic markets.
Outlook
Last month, the Fed cut interest rates for the first time since 2020. Following the decision to cut rates by 50 basis points, the president of the Federal Reserve Bank of St. Louis commented that he supports additional interest rate cuts, stating at a meeting in early October, "Further gradual reductions in the policy rate will likely be appropriate over time." Should this forecast hold true, M&A activity in 2025 could see an even greater volume of deal flow, with access to capital becoming more affordable for firms.
As we move into the final quarter of 2024, AEC leaders must stay agile and proactive amidst a shifting landscape. With regulatory changes, economic uncertainties, and evolving industry demands, the ability to anticipate and adapt will be essential. The focus should be on aligning M&A strategies with long-term goals, leveraging acquisitions to strengthen service capabilities, and exploring new markets for growth. Firms that prioritize strategic integration and remain responsive to broader trends will be best positioned to thrive in the months ahead. A clear vision and decisive action will be key to sustaining momentum and capturing emerging opportunities in this dynamic environment.
