M&A activity in the AEC industry surged in 2024, driven by private equity, regulatory investments, and strategic acquisitions.
As we enter the last quarter of 2024, it’s clear that mergers and acquisitions activity in the architecture, engineering, and construction industry is gaining significant momentum. After a slow finish to 2023, the sector has seen a resurgence in deal-making, with notable increases in transaction volumes and continued interest from private equity firms. In this article, we’ll explore the key factors driving this surge, including the impact of regulatory initiatives, geographic trends, and the role of private equity. We’ll also look ahead to what AEC firms should expect in the final quarter of the year and beyond.
M&A deal activity in 2024: A strong recovery. At the close of Q3, the AEC industry has experienced a remarkable 33 percent increase in deal activity compared to the same period last year. This uptick follows a modest dip in Q2 2024, which aligned with typical cyclical trends. To date, the industry has seen 172 deals close in Q3 alone, a significant jump from the 129 deals in Q3 2023. The first half of 2024 mirrored prior years in deal activity, with 172 closings in Q1 2024 and 171 in Q1 2023, but the surge in Q3 signals that the industry is on solid ground as we head into the final months of the year.
Driving this resurgence is the continued interest from serial buyers and large AEC firms backed by private equity. Leading the charge is Verdantas, which has completed eight deals so far this year. Other active acquirers include Salas O’Brien, IMEG, SLR, Bowman Consulting Group, and Celnor Group, each closing seven transactions, while firms like Montrose Environmental Group and NV5 are right behind with six deals each.
This level of activity from serial buyers is a clear sign of confidence in the industry’s long-term prospects. Larger firms are increasingly leveraging acquisitions to expand their geographic reach, diversify service offerings, and enhance specialized capabilities. This not only boosts growth potential but also provides smaller firms with unique opportunities to strengthen their market positions through strategic partnerships or acquisitions.
The role of regulatory and infrastructure investments. One of the most significant factors behind the surge in M&A activity is the influx of federal spending, driven by key legislation like the Infrastructure Investment and Jobs Act and the Inflation Reduction Act. These laws are expected to inject more than $580 billion into the AEC industry from 2022 to 2026, with the bulk of that funding (78 percent) going to surface transportation projects. Other sectors benefiting from this investment include energy, water/wastewater, and airports.
The IIJA, in particular, has been a game-changer for the industry. Not only has it added new projects to the backlogs of engineering firms, but it has also spurred job growth, especially in the civil engineering sector. Since the passage of the IIJA, job creation in highway, street, and bridge construction has averaged around 2,800 new positions per month – nearly four times the pre-IIJA rate.
This surge in demand for engineering services has also had a ripple effect on M&A activity. Firms specializing in civil and environmental engineering have become particularly attractive acquisition targets as private equity firms and larger AEC players look to capitalize on the increased workload.
Private equity’s expanding role in AEC. Private equity continues to play a critical role in shaping the AEC industry. So far in 2024, PE-backed firms or direct investments by PE funds have accounted for 40 percent of all closed transactions. This is a slight increase from 2023, when private equity was involved in 39 percent of deals.
The growing involvement of PE in the industry is largely driven by a strategy of consolidation. By acquiring smaller firms, PE-backed companies can rapidly expand their service offerings, enter new geographic markets, and create long-term value. This trend is expected to continue as the AEC sector remains an attractive target for private equity due to its stable growth prospects and increasing demand for infrastructure improvements.
Another key trend is the rise in the size of firms involved in M&A activity. In 2024, the median size of sellers is 32 full-time employees, up from 25 in 2023. Acquirers have also grown larger, with the median acquirer size increasing from 605 FTEs in 2023 to 837 FTEs so far in 2024. This shift reflects the growing participation of larger firms in the M&A market, driven in part by the influx of private equity capital.
Geographic trends and cross-border deals. Geography continues to play a critical role in M&A activity, with certain regions standing out as hotbeds of deal-making. Texas, California, and Florida are the most active markets, accounting for nearly 20 percent of all M&A transactions in 2024. Other states seeing significant activity include New York, Pennsylvania, Colorado, and New Jersey, each of which has recorded 15 or more acquisitions this year.
Internationally, cross-border deals have also seen a resurgence. As of Q3 2024, 35 percent of all M&A transactions have involved international firms, with 175 deals closed so far. This is just shy of the total number of international deals in 2023, indicating that global expansion is once again a priority for AEC firms.
Outlook for 2025 and beyond. Looking ahead, several factors could shape the M&A landscape in the coming year. Interest rates, which have been a major driver of deal activity, could continue to fluctuate as the Federal Reserve adjusts its policies in response to economic conditions. The Fed’s decision to cut rates by 50 basis points in September 2024 has already made capital more accessible, and additional rate cuts could further stimulate M&A activity in 2025.
However, there are also uncertainties to watch, including the upcoming U.S. presidential election and ongoing geopolitical tensions. These factors could introduce volatility into the market, making it even more important for AEC firms to remain agile and responsive to changing conditions.
For firms looking to capitalize on M&A opportunities, the key will be aligning acquisition strategies with long-term business goals. Whether through geographic expansion, diversification of services, or strategic partnerships, the firms that take decisive action and maintain a clear vision for growth will be best positioned to thrive in the evolving landscape.
Alec Russell, MBA is a senior mergers and acquisitions analyst with Zweig Group’s Transition consulting group. Contact him at arussell@zweiggroup.com.
