This report details some of the biggest trends and movements regarding M&A activity in the AEC industry as of the end of 2023.
Zweig Group tracks every M&A transaction that takes place in the architecture, engineering, and construction 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. This report will detail some of the trends and movements regarding M&A activity in the AEC industry as of the end of Q4 2023.
While the slight decline in AEC M&A activity for 2023, with 568 closed deals representing a 1 percent drop from the previous year's 574, may signal a pause, it is crucial to consider this within the context of broader market trends. Notably, the deceleration in Q3 and Q4 reflects a return to the consistent deal flow observed over the past two years, signifying underlying stability rather than a sharp downturn. This sustained, albeit slightly reduced, level of M&A activity underscores the AEC industry's continued resilience and strategic focus, propelled by persistent factors such as infrastructure investment needs and skilled labor competition. Therefore, the current landscape suggests a measured adjustment rather than a dramatic shift in market dynamics.
*Total deal activity tracked quarterly
2023 witnessed RSK Group's dominance in the AEC M&A market, with an impressive 27 acquisitions solidifying their leadership position. Bowman Consulting Group followed with 11 deals, signifying their ambition for strategic expansion. A notable group, including Sweco, Universal Engineering Sciences (UES), and RMA Group, each completed seven transactions, reflecting the continued appetite of M&A activity across diverse segments of the industry. Notably, Sweco's unique focus on talent acquisition, evident in their stellar average of 130 full-time employee (FTE) additions per deal, highlights the growing importance of workforce expansion per deal.
*Companies with most acquisitions of 2023 and total FTE added.
2023 witnessed a significant shift in the AEC M&A landscape, propelled by two noteworthy trends: the surge of private equity involvement and a renewed focus on domestic deals. Compared to just 16 percent in 2022, private equity firms fueled 38 percent of all transactions this year, demonstrating institutional capital’s bullish outlook for the AEC industry as a whole. This robust influx of capital undoubtedly reshaped the market dynamics and empowered strategic acquisitions. One of the most notable PE deals in 2023 was the acquisition of Atlas Technical Consultants, which was acquired by GI Partners in an all-cash transaction valued at approximately $1.05 billion.
The pendulum swung further toward domestic shores, with a noticeable decline in cross-border M&A activity. Whereas 43 percent of acquired firms hailed from outside the U.S. in 2022, that figure contracted to 32 percent in 2023, signifying a prioritization of domestic opportunities. This internal focus could be attributed to factors like geopolitical uncertainties and a desire to capitalize on the strong national infrastructure spending plans.
*Comparing domestic and international deal activity since 2020.
The geographical landscape of domestic M&A activity also presented an intriguing shift. California, the top acquisition space of 2022, ceded its top spot to Florida and Texas, which emerged as the most sought-after states for acquirers in 2023. This redistribution of deal volume suggests diverse regional growth trajectories within the U.S. AEC market and also reflects the larger population shifts seen in the U.S. since the COVID-19 pandemic.
*Comparing most active seller states in 2023.
*Breakdown of closings by geography
Shifting trends in 2023 have shown increasing buyer interest in firms that serve transportation, water, and power/energy markets. With government-funded programs, such as the Infrastructure Investment and Jobs Act (IIJA), significant boosts have occurred to infrastructure-related projects, leading to further market growth. Another key trend that is impossible to leave out when discussing 2023 is AI. Artificial intelligence has seen an unprecedented rise in popularity in nearly every industry this year. For AEC, this has included improvements in knowledge and project management, as well as design and automation including integration with BIM and other platforms. As the technology is still somewhat in its infancy, we will continue to keep an eye on this trend and its effect on the AEC industry at large.
*Most popular markets served by AEC sellers in 2023.
To wrap up, transaction volume has remained constant year over year, thanks to a busy Q1 and Q2 as the final two quarters of the year had activity cool down. Texas and Florida have grown in popularity as both states surpassed California as the most active seller states. Shifting trends into more water, transportation, and infrastructure projects continue to be spearheaded by IIJSA and other federal spending. Lastly, private equity firms have continued to increase their market share as they increase buying activity in AEC firms.M&A activity report for Q4 2023