What’s Up With Texas Consolidation?

What’s Up With Texas Consolidation?

The 10^th annual Texas and the South M&A and Business Symposium takes place next month in Houston, the epicenter of industry M&A in the Lone Star State (more on that later). Given that we’ve advised on 53 deals involving Texas sellers and buyers, we know a thing or two about how M&A is playing out in the state. Here are some insights into industry consolidation in Texas:

1. Leading the nation—again: With 31 deals as of the end of July, Texas is seeing the most M&A activity of any state. If you think that stat sounds familiar, you’d be correct. Texas has led the country in terms of consolidation in seven out of the last ten years. 
2. You from outta town? Year-to-date, three-quarters of all Texas transactions have included out-of-state acquirers. Since 2018, two-thirds of all transactions in the state have involved out-of-state firms using acquisitions to enter or further grow their business in the state. The Texas market is viewed by many leading AE and environmental firms as critical to their future growth and success, and they’re prepared to make big investments to get in on the action. 
3. Origin stories: Where have all of these out-of-state acquirers been coming from? Since 2018, California firms have been the most active acquirers in Texas with a total of 23. Illinois is a close second with 19. Rounding out the top five origin states for acquirers of Texas firms are New York (16), Florida (14), and Maryland (11).
4. Homemade deal-making: While out-of-state firms make up the lion’s share of acquisitions in the state, they are not the only ones making their marks. The three most prolific in-state acquirers of Texas firms since 2018 are LJA Engineering (Houston, TX) (ENR #67) with eight acquisitions, DCCM (Houston, TX) (ENR #130) with six, and Dunaway (Fort Worth, TX), which has made five. 
5. Deal size increasing: The median-sized seller in the Lone State has more than doubled over the past five years. This year, the median Texas seller had revenues of $5.1 million, up from $2.5 million in 2019. 
6. Where the action is: Houston has seen the most consolidation of any metro area in the state since 2018, with a whopping 88 transactions. This is followed closely by the Dallas-Fort Worth metroplex with 85. Austin is a close third with 60 deals. Then there is a sharp fall off to San Antonio (17) and Corpus Christi (5). 
7. A harbinger of things to come? This year, 59% of transactions in the state have involved a recapitalization or acquisition by private equity. That’s a significant shift from past patterns. When looking at Texas deals since 2018, 50% of all transactions have involved an employee or ESOP acquirer, 42% a private equity buyer, and 8% a publicly traded buyer. We’ll be keeping a close eye on this trend over the next few months and will be reporting our findings at the upcoming Texas and the South M&A and Business Symposium in Houston. 
8. Texas firms making waves: What’s been the impact of Texas acquirers on consolidation nationally? Pretty substantial. Since 2018, Texas acquirers have accounted for 10% of all acquisitions in the U.S. 
9. Lonesome Dove: Where have Texas firms been acquiring when they venture out of state? Since 2018, the top four states where Texas firms have made acquisitions have been Florida (28), Georgia (18), California (16), and Colorado (11). 

There are more transactions of AE and environmental consulting firms in Houston than any other U.S. city (and most states). It’s the center of the action. That’s one of the reasons why we host our annual Texas and the South M&A and Business Symposium at the beautiful five-star Post Oak Hotel at Uptown Houston every year. Register today to join over 200 AE industry executives and investors at the #1 deal-making event of the year in the #1 city for deals. 

You can contact Mick Morrissey at [email protected] or 508.380.1868.