M&A activity up 6% year over year: Despite sluggish beginnings to an economic recovery in 2010, the number of industry M&A deals increased 6% from a four-year low of 232 in 2009 to 246 last year, somewhat below our predicted increase of 10%. While this is down just under 19% from a high of 303 transactions in 2008, this level of activity remains elevated relative to levels seen after the 2001 recession, and represents the third-largest annual volume of transactions since 2000.

2011 Outlook: We anticipate that M&A activity will increase 10-15% percent to the 270–285 range in 2011, driven by (a) an ongoing economic recovery encouraging an increasing number of domestic buyers seeking out opportunities to grow top-line and increase market share while firm valuations are relatively low, and (b) international buyers entering the U.S. market in anticipation of a flood of private capital entering the infrastructure development and rehabilitation market.

Global M&A Activity: 2000 through 2010    

Interstate M&A activity remains low: In 2010, just over half (54%) of deals involving a U.S. buyer and seller occurred across state lines, continuing a trend of defensive deal-making witnessed through this recession. A merger with a local peer or in some cases a competitor has allowed many firms to streamline operations and reduce costs without completely capitulating in this challenging economic environment.

2011 Outlook: We anticipate that the levels of interstate M&A activity will only begin to return to prior recessionary levels once a sense of confidence returns to the industry—and with many states in a state of fiscal crisis we don’t see this happening for another 24 months.

Interstate M&A Activity: 2000 through 2010    

Consolidation by the publics grows and returns to pre-recession levels: Given the recent global economic conditions and the resultant uncertainty in the capital markets, it’s no surprise that the publics were a bit less aggressive in their pursuit of acquisitions during 2009. However, the start to a recovering economy brought forth a restored interest in acquisitions by the publics. Acquisitions by publicly-traded industry giants reverted to their pre-recessionary levels in 2010—representing 36.2% of all global deals last year, up from 31.5% in 2009, and in line with 37.0% and 35.7% in 2008 and 2007, respectively.

The most active publicly-traded acquirers globally last year (and the number of deals they made) were Stantec (10), Genivar (9), AECOM (5), AMEC (4), and Jacobs (4). This trend was mirrored in the United States, where 24.5% of domestic deals involved a publicly traded buyer, up from 20.0% last year and 21.1% and 23.4% for 2008, and 2007, respectively.

2011 Outlook: We anticipate that in 2011, the publics will maintain their historical levels of acquisition participation between 35% and 40% of global transactions.

% of Global Transactions Involving a Public

U.S market remains an opportunity for international firms: As anticipated, about one fifth (21%) of domestic transactions involved a non-U.S. buyer in 2010, up from just under 13% last year. There were more non-U.S. firms buying into the U.S. (30) than there were U.S. firms making international acquisitions (13), continuing a trend first reported in 2007.

Outlook for 2011: We anticipate that this trend will continue as an increasing number of non-U.S. firms look to capitalize on relatively under-valued firm and infrastructure assets in a lagging U.S. economic recovery. Look for more Canadian firms buying in the U.S. - but not necessarily the usual players. Also, we anticipate this year will see more Pacific Rim buyers acquiring “platform” firms in the U.S.

Attractiveness of U.S. Market

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