M&A deal survey shows enduring attraction of power, transport and water firms to investors

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Morrissey Goodale’s annual industry M&A review highlights that market activity remains significantly above long-term historical levels, with power, water and transport firms attractive to investors.

Leading US management consulting and advisory services firm for the architecture, engineering and environmental sector, Morrissey Goodale, has published their AE Industry M&A Year-in-Review, which offers a definitive 2023 report of M&A activity, focusing on key trends and insights of deal-making across the architecture, engineering and environmental industry for the year.

In 2023, industry dealmakers forged ahead despite sharply rising interest rates and widespread predictions of recession, announcing a total of 427 US acquisitions. Despite a decrease of 11.2% from the record 481 transactions announced in 2022, overall market activity remained significantly above long-term historical levels. Notably, 2023 marked the third consecutive year – and only the third year in history – where US deal volume surpassed 400 transactions.

The review highlights that 300 unique buyers and investors from ten different countries combined to close deals, with the median acquirer reporting revenue of $96m, while the median seller reported revenue of $3m. In total, 16 ENR Top 500 Design firms were sold or recapitalised and overall, employee-owned buyers drove the largest share of deals, claiming 53% of all domestic acquisitions, followed by private equity-backed buyers at 39%, and publicly traded buyers at 8%.

Firms with proven records in the power, transportation and water markets saw the most interest from industry buyers and investors and the states of Florida, Texas and California witnessed the most consolidation, in line with trends observed over the past few years.

According to the report, the slight pullback in M&A activity throughout 2023 was shaped by a range of factors, including inflation, and the Federal Reserve’s interest rate hikes aimed at curbing escalated costs. The cumulative effect of these trends resulted in US deals falling to a three-year low. However, with the Federal Reserve pausing interest rate hikes mid-year and sustained economic activity across a range of market sectors, both the US economy and industry deal activity showed surprising resilience in the second half of the year.

Consolidation was consistently strong across all markets in 2023, but engineering and environmental firms with records in transportation, water, and/or power saw the most interest from industry acquirers and investors. With much of the current government funding and incentives focused on roads, bridges, water and wastewater, as well as infrastructure to support energy transition efforts, the landscape for firms seeking expansion in these areas is rich with opportunities, says the report.

Looking ahead to 2024, the Morrissey Goodale review states: “As we look ahead to 2024, the outlook for M&A activity in the industry calls for sustained momentum from the prior year. With strong demand from clients and the need for staff at all levels, the industry is poised to continue its consolidation trend. Large firms and those backed by private equity are expected to remain at the forefront of this consolidation, capitalising on their financial robustness to make strategic acquisitions.

“We anticipate that smaller deals, or those less than $50m in transaction value, will continue to draw buyers searching to fill specific strategic needs. These transactions offer a viable path for companies to enter new sectors and acquire talent, especially in the transportation, water and power markets.”

Click here to download Morrissey Goodale’s 2023 AE Industry M&A Year-in-Review.