AE Industry M&A: Q1 2019 Review

US deal-making activity is on pace to match the record levels seen in 2018. Morrissey Goodale tracked 83 US deals in Q1 2019, slightly outpacing the 82 deals tracked during the same period in the prior year. Taking a longer view, US deals are up 16% during the last 12 months ending with the close of Q1 versus the prior 12-month period.

California was once again the hottest US state for M&A activity in Q1, recording a total of 10 deals. Four of those deals were made by firms ranked on ENR’s Top 500 Design Firms list. Acquirers included Perkins+Will (ENR #29), Gannett Fleming (ENR #39), IMEG (ENR #111), and Mithun (ENR #322). Deal activity in California continues to be driven by a combination of expectations for continued population growth, the state’s diversified economy boosting each sector of the A/E industry, and infrastructure investment driving demand for design and construction services. Florida ranked as the next hottest state, seeing 8 deals during the first quarter. Infrastructure investment appears to be the primary driver of deal activity in the Sunshine State, as six of these deals involved sellers serving the transportation and/or water & wastewater markets. Other notable states for M&A activity in the first quarter were Texas (seven deals), Colorado (five deals), Illinois (five deals), and Michigan (five deals).

Notable observations from Q1 2019 M&A activity include:

• Private equity firms have continued to build their presence in the A/E industry, as nearly 21% of global deals struck during the first quarter were backed by private equity capital. In contrast, deal activity fell among public buyers, as just 8.5% of global deals during the first quarter involved publicly traded firms – down from 19.6% of deals made during the same period a year ago.
• Globally, the median acquiring firm in Q1 2019 generated approximately $41 million in annual revenue, down significantly from $121 million in Q1 2018, indicating broader use of M&A by smaller firms as a means of driving growth.
• The water and wastewater markets were particularly hot this quarter, as the number of sellers in Q1 2019 serving these markets jumped 40% in from the first quarter a year ago and accounted for more than half of all deals made in Q1 2019.
• Inter-state deal activity (defined as a firm headquartered in one state acquiring a firm headquartered in another) accounted for 67.5% of all US deals in Q1 2019, up from 64.5% in Q1 2018. This indicates a preference among buyers to use acquisitions to expand their firm’s geographic reach.
• Firms offering engineering services were the predominant sellers in Q1 2019, accounting for 65% of sellers. This percentage is typical of M&A activity in the A/E industry and is reflective of the relatively large portion of industry firms that offer some form of engineering service.

Looking ahead, we expect 2019 to be another year of robust deal-making amidst a strong economy, growing demand for A/E services, and an increasing presence of private capital in the industry.