As long-time observers of merger and acquisitions in the engineering industry, we here at Morrissey Goodale have become adept in recent years at finding new ways to describe the ever-escalating number of transactions. As the deal counts piled up with each successive trip around the sun, we consulted our thesaurus and went from describing the market as “active” to “very active” to “hot” to “sizzling” to “red hot” and to—get this—“white hot.” But now, the story of 2021 is that we’ve nearly run out of adjectives to describe industry M&A activity such that we have just this word left: unprecedented.
In today’s social media-driven world that seems to above all else push for hyperbole, we acknowledge using the U-word may be fraught with peril, but there is just no other way to describe what we see. In our previous column just a few months ago, the trajectory of deal-making based on data from early 2021 led us to predict 340 sales of firms headquartered in the U.S. for the full year. That represented a 20 percent increase over the highest-ever annual total in 2019. But the latest 2021 data, showing 254 U.S. transactions as of mid-August, leads us to forecast more than 400 deals for all of 2021, a figure largely driven by the prolific success of ACEC deal-makers from coast to coast. To put this in perspective, not too long ago, in 2015, the industry closed 240 deals—or about what we saw through the first seven months of 2021—but took the entire year to do it. Where we now stand is truly unprecedented.
A variety of factors are driving this never-before-seen surge in consolidation, but in 2021, we have two unique factors in play, both related to the federal government. First, the prospect, and eventual signing of the $1.2 trillion infrastructure bill has motivated strategic and financial buyers to position themselves to capture spending and has incentivized sellers to seek strategic partnerships. Second, the current administration and Congress are openly talking about a change in tax rates to help fund a “human infrastructure” bill passed through budget reconciliation. Deal-makers are no doubt pushing to close transactions this calendar year with known, quantifiable taxes before Congress enacts any changes.
A review of the transactions over the last several months gives us insight into how ACEC deal-makers are thinking right now as they combined to close a whopping 51 transactions just from April through July, which we’ve listed below. Here is what the data tells us:
1. Private equity and family office investment is robust and growing. Private equity’s momentum from 2019 and 2020 continued through the first half of 2021 in the engineering industry. In 2019, 24 percent of deals were either an acquisition by a private equity-backed operating firm or recapitalization by a private equity group, and in 2020 this percentage rose to 27 percent. The trend has only accelerated in 2021, with 69 U.S. deals backed by private equity dollars, representing 34 percent of all industry transactions. We need to give a special shout-out to a handful of these firms, all ACEC members, that closed and announced transactions this year. Leading the pack is PE-backed Universal Engineering Sciences (Orlando, Fla.) (ENR #85) with five deals in the first half of 2021. Other PE-backed strategic buyers that made a deal in the first six months of this year include TranSystems (Kansas City, Mo.) (ENR #83) and Hull & Associates (Dublin, Ohio) (ENR #256).
2. Sellers are large and small, but a number are quite large. In the first quarter of 2021, seven ENR Top 500 design firms sold or recapitalized, including five in the Top 100. In the second quarter, four more leading design firms partnered with strategic or financial buyers, including familiar ACEC member Westwood (ENR #122) as the firm announced a strategic investment from Endurance Partners (New York). Firms outside of the ENR Top 500 are also attractive suitors to private equity. In May, Prime Engineering (Atlanta) received a strategic investment from Godspeed Capital (Washington, D.C.) and then quickly welcomed architecture, engineering, and surveying firm Austin Brockenbrough & Associates (Richmond, Va.) to the portfolio. Meanwhile, Long Arc Capital (New York) made a majority investment in Braun Intertec’s (Minneapolis) (ENR #114) Agile Frameworks, representing both an industry acquisition and a technology-oriented play.
3. Buyers are at work within and without state borders. Inter-state deal-making, classified as a transaction in which buyer and seller are headquartered in different states, eclipsed its highest level on record in the first half of 2021. This type of deal-making generally speaks to buyers feeling confident in using M&A as a growth strategy, often willing to pay premiums across state borders to get where they need to go. Through June, inter-state deal-making accounted for 68.5 percent of all deals. California saw the most activity of any state through the first half of 2021 with 34 firm sales, followed by Texas (19 deals), Florida (15 deals), Indiana (8 deals), and Connecticut and Virginia (7 deals each). ACEC members Tetra Tech (Pasadena, Calif.) (ENR #4), HDR (Omaha, Neb.) (ENR #6), NV5 (Hollywood, Fla.) (ENR #27), and RRM Design Group (San Luis Obispo, Calif.) acquired in California in the first six months of 2021. That said, we also note deal-makers this year have been happy to stay close to home and find deal partners headquartered in the same state. Below we report a number of transactions with ACEC member firms coming together in Pennsylvania, Maryland, Michigan, Ohio, Wisconsin, Texas, Washington, and California.
While we expected the upward trajectory of transactions coming into the year, we still marvel at the unprecedented acceleration of consolidation in 2021. Industry decision-makers have embraced M&A as part of their strategic plans and show no signs of slowing down.
ACEC member Universal Engineering Sciences (UES) (Orlando, Fla.) (ENR #85) announced that BDT Capital Partners (Chicago) has entered into an agreement to make a significant strategic investment in the company through an affiliated fund. BDT will become the majority shareholder of UES.
Engineering, architecture, and land surveying firm Abonmarche (Benton Harbor, Mich.) acquired engineering and surveying firm Milanowski & Englert (Grand Haven, Mich.). Abonmarche is an ACEC member.
ENR’s #17 ranked global design firm and ACEC member, Mott MacDonald (Croydon, England), acquired The Kercher Group (Newark, Del.), a firm specializing in transportation asset management and engineering with extensive expertise in pavement, bridge, and maintenance management. The company continued its U.S. expansion through the acquisition of Pacific Groundwater Group (Seattle), a hydrogeology, groundwater/surface water interactions, modeling, soil, sediment, water chemistry, and regulatory strategy services firm.
Horizon Engineering Group (Maitland, Fla.), a specialist in roadway, transportation design, structural design, and stormwater management, joined design firm Greenman-Pedersen, Inc. (GPI) (Babylon, N.Y.) (ENR #64). Both firms are ACEC members.
For its sixth deal of 2021, fast-growing Universal Engineering Sciences (Orlando, Fla.) (ENR #85) acquired Geotechnology (St. Louis) (ENR #407), a firm specializing in applied earth and environmental sciences, exploration, geotechnical engineering, and underground consulting services. Both firms are ACEC members.
ENR’s #15 ranked construction management-for-fee firm, Atlas Technical Consultants (Austin, Texas), acquired O’Neill Service Group (Redmond, Wash.), a construction quality assurance and environmental services firm. Both firms are ACEC members.
ACEC member RESPEC (Rapid City, S.D.) acquired Progressive Water Resources (Sarasota, Fla.), a water resource consulting firm with extensive experience in multiple aspects of ground and surface water resource development and management.
Multi-disciplinary consulting firm Pennoni (Philadelphia) (ENR #91) acquired Cocciardi and Associates (Mechanicsburg, Pa.), a firm that provides safety, industrial hygiene, environmental, public health, and emergency preparedness services. Pennoni is an ACEC member.
ACEC member NMP Engineering Consultants (Hunt Valley, Md.), a provider of engineering, landscape architecture, planning, and environmental design services, merged with Progressive Engineering Consultants (Hunt Valley, Md.), a construction management and inspection firm focused on the transportation industry.
Infrastructure planning and design firm and ACEC member KLJ Engineering (Bismarck, N.D.) (ENR #179) acquired Zillgitt Civil Design (Zumbrota, Minn.), a civil engineering and surveying firm focused on public infrastructure and land development services.
Project management services firm Versar (Springfield, Va.) acquired the Environmental Services Business Unit of Black & Veatch (Overland Park, Kan.) (ENR #13). The acquisition will strengthen Versar’s Environmental Services Group by enhancing its capabilities within environmental remediation and site restorations. Black & Veatch is an ACEC member.