AE Industry M&A: Q1 2018 Review

Off to a Fast Start in 2018; California Leads the Way as Hottest State for Dealmaking

Morrissey Goodale tracked 76 US deals in Q1 2018, well up from the 47 deals tracked during the same time period in the prior year. Additionally, US deals are up 13% during the latest twelve months ending with the close of Q1. Dealmaking in Q1 2018 also outpaced the first quarter of 2015 (70 US deals), a year which ended with a record-high 241 industry deals in the US.

California was the hottest state for M&A activity in the first quarter of 2018, recording a total of 13 deals. Ten of these deals were made by firms ranked on ENR’s Top 500 Design Firms list. Acquirers included Tetra Tech (ENR #5), NV5 (ENR #54), CannonDesign (ENR #79), HBK Engineering (ENR #220), EnSafe (ENR #222), Salas O’Brien (ENR #232) (two deals), Advantage Engineers (ENR #425), Steinberg Hart (ENR #440), and DAHLIN Group (ENR #487). Deal activity in The Golden State was driven by a combination of its diversified economy touching each sector of the A/E industry, expectations for population growth, and infrastructure investment driving demand for A/E services. Texas, the next hottest state, saw 9 deals. Other notable states for M&A activity in the first quarter were Ohio (6 deals), Massachusetts (5 deals), and Virginia (4 deals).

Notable observations from Q1 2018 M&A activity include:

• Inter-state deal activity (defined as a firm headquartered in one state acquiring a firm headquartered in another) accounted for 64.5% of all US deals in Q1 2018, up from 61.7% in Q1 2017. This indicates a preference among buyers to use acquisitions to expand their firm’s geographic reach.
• In Q1 2018, 7 international firms bought into the US while 4 US firms acquired abroad. This represents an increase in US firms buying overseas relative to the prior year, as only two deals in 2017 involved a US firm acquiring abroad. The acquisitions of US firms by international firms were made by buyers based in the United Kingdom, Canada, and France. The international firms that sold to US buyers were based in Australia, Canada, China, and Denmark.
• Globally, the median acquiring firm in Q1 2018 generated approximately $120 million in revenue, up from $100 million in Q1 2017, indicating an increased reliance on M&A by larger firms as a means of driving growth.