The six big takeaways from our Texas M&A Symposium
We just got back from our Texas M&A Symposium at the beautiful Post Oak Hotel in Houston. It was great to reconnect in person with industry leaders, M&A decision makers, and investors after 18 months of virtual interaction. Here are the six big takeaways from the Symposium.
Industry M&A—we’re in uncharted territory! Year-to-date there have been 335 transactions of A/E and environmental firms. That number eclipses the prior full-year record of 318 deals set in 2019. And there’s still two months to go in the year! We’re anticipating that deal-making in Q4 will be lit and that 2021 will be the first year to see 400-plus transactions. There has been a step-function increase in the pace of industry consolidation since 2018, and it’s only gathering momentum.
Jaw-dropping deal multiples: When we were last in Houston in October 2019, we reported that deal valuations were at record levels. Well guess what? EBITDA multiples across all quartiles have increased over the past two years. Median multiples are up 7.6%. Upper-quartile multiples have jumped 7.5%. And lower-quartile multiples edged up 4.8%. Bottom line—it’s a great market for sellers.
Confidence among buyers is at record-high levels: How do we measure that confidence? In our cross-border M&A activity index. In 2021, 7 in 10 transactions have involved the acquirer buying a firm in a different state. We’ve never seen this level of interstate deal-making before. Buying across state lines is riskier than buying in-state. But that train has left the station, and buyers are using acquisitions to aggressively diversify. Message for sellers—there’s a high probability that your buyer does not move in the same local professional industry circles that you do.
Everything’s not just bigger in Texas: It’s also more valuable. Well, at least that’s the case for Texas A/E and environmental firms. All things being equal, a firm in Texas is 14% more valuable than one in any other state in the Union.
All roads lead to the Texas Triangle: The area bounded by Dallas-Fort Worth, Houston, San Antonio, and Austin—known as the Texas Triangle—is by far the most active region for industry deal-making in the state. It’s no surprise. With some 500,000 people moving to Texas annually and most of them heading to the Texas Triangle, the demand for design and environmental firms (and their valuations) is off the charts.
A fast-moving industry recapitalization: Private equity and family offices are behind over one-third of all industry deals this year. And that will likely grow to over 40% next year. Buyers backed by private equity make up the majority of the most prolific acquirers in the market. The private-capital model is supplanting the traditional employee-owned model. We are moving rapidly from a majority employee-owned industry to a minority employee-owned one. Employees will still have ownership—but on a much-diminished scale than in pre-Great Recession times.
Congratulations to our friends at Dwyer Engineering (Leesburg, VA): This week they announced their acquisition by Erdman Anthony (Rochester, NY) (ENR #385).
Missed the Texas M&A Symposium? Don’t worry! We’ve recorded it and will be making it available soon. Sign up here to be notified when the video recording of the Symposium is available for purchase.
Speaking of Texas: Who is the leading M&A advisor serving the Texas A/E market? We are. Check out these industry-leading 25 transactions in which we have assisted Texas A/E and environmental firms to either achieve their strategic goals through M&A or enter or grow in Texas through acquisition. To see the 150+ A/E and environmental firm transactions that our team has initiated and advised on nationally, click here.
Early-bird registration for Southeast States M&A Symposium is open: Interested in growing through acquisition in the Southeast? Or are you based in the Southeast and considering a merger or sale? Or would you like to have a business-justified reason to spend a long weekend in Miami this January? If you answered “Yes” to one or more of these questions, our Southeast States M&A Symposium in Miami, Florida, is for you!
Questions? Insights? Thoughts on where all this industry consolidation is leading? Email Mick Morrissey at [email protected] or call him at 508.380.1868.