Behind the Buyers in the “Big 3”

For more than a decade, California, Florida, and Texas have been the “Big 3” when it comes to industry consolidation. The one reliable constant in U.S. AE industry M&A is that every year these three states compete for—and alternately share—the gold, silver, and bronze when it comes to the number of in-state transactions. On an annual basis, they account for roughly one-third of all domestic AE and environmental consulting deals.

There are some obvious reasons why this dynamic exists. All three states are massive economies, accounting for almost 29% of U.S. GDP. They each have enormous public, private, and institutional sectors with huge appetites for AE and environmental consulting services. Between them, Texas and Florida are home to some of the fastest-growing metropolitan areas in the country and are among the most business-friendly states.

Beyond the big picture drivers for all of the activity in the Big 3, a closer look at the consolidation in each state over the past decade reveals some intriguing patterns, the most prolific buyers, and one surprising common theme.

1. California confidential: Over the past decade, firms headquartered in California have been the most active consolidators of the Golden State market for AE services—accounting for 142 acquisitions. In other words, intrastate consolidation is the name of the game. Most of these intrastate deals involved a firm based in Southern California acquiring in the northern part of the state, or vice versa. In-state firms leverage their pre-existing relationships through state and agency relationships to get a leg up on out-of-state acquirers for M&A targets. Over the same period, New York buyers were the second-most active consolidators in the state. The New Yorkers made 31 acquisitions as they looked to diversify their operations to the West Coast. Since 2014, the single-most active acquirer in California has been Montrose Environmental Group (North Little Rock, AR), which has made 14 acquisitions. 

2. Florida facts: Intrastate consolidation is also the most common form of M&A in Florida, accounting for 80 acquisitions over the past decade. Again, this is a reflection of the distinct regional markets that exist in the state. The strategic plans of many of the state’s most ambitious firms include acquisitive regional growth throughout Florida. Flush with success in their home state, and looking to diversify beyond it, Texas-based firms have been gaining market share in Florida through acquisitions. They are the most active out-of-state acquirers in Florida, making 30 acquisitions since the start of 2014. The most recent acquisition announced in the Sunshine State was that of Avid Group® (Palm Harbor, FL) by McAdams (Raleigh, NC) (ENR #262). (Morrissey Goodale advised McAdams.) Over the past decade, Florida’s own NV5 Global (Hollywood, FL) (ENR #24) and one of our Nine Movers and Shakers to Watch in 2024 has been the most prolific acquirer of firms in its home state, completing 10 acquisitions.

3. Texas by the numbers: Take a look at the strategic plan of any of the ENR Top 200 firms, and there’s a better than 90% chance that it includes a proposed acquisition in Texas. So most deals in Texas must be by out-of-state buyers, right? Wrong! As with California and Florida, intrastate consolidation is the primary driver of M&A in Texas, accounting for 143 transactions since 2014. Texans just like dealing with other Texans! The hyper-regionalism of the Florida and California markets is taken to the next level in Texas, with a healthy amount of intracity deals being a feature of the state’s consolidation. To emphasize the point, the most recent acquisition announced in the state was that of KSA Engineers (Longview, TX) (ENR #448) by Pape-Dawson Engineers (San Antonio, TX) (ENR #93). And, not surprisingly, the most prolific acquirer in the state is also Texas-based. LJA Engineering (Houston, TX) (ENR #67) has made a total of 16 acquisitions in the Lone Star State since 2014. The tremendous growth opportunities presented by the Texas market have not gone unnoticed in California. Buyers from the Golden State have been the most active out-of-state acquirers in Texas over the past decade, accounting for 30 acquisitions. 

Each of the Big 3 manifests its own unique consolidation nuances, patterns, and groups of buyers. However, they share one common trend—that of significant intrastate deal-making. 

We’ll be diving deeper into industry consolidation—trends, prices, and what’s nextat the 11th annual Southeast M&A and Business Symposium in Miami in March. Join over 200 AE industry executives and investors for two days of networking and learning.

Connect with Mick Morrissey at [email protected] or 508.380.1868.

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