The calendar may have changed to 2024, but the story remains the same for merger and acquisition activity in the engineering industry as it continues at near-record levels. Propelled by federal infrastructure funding, the “great recapitalization” of the industry by private equity, and the difficulties baby boomer and Generation X owners face in transitioning ownership internally, ACEC dealmakers have remained extremely active, as indicated by the transactions involving member firms detailed below.
Despite a decrease of 9.6 percent from the record 481 transactions announced in 2022, overall market activity remained significantly above long-term historical levels. Notably, 2023 marked the third consecutive year—and only the third year in history—where U.S. deal volume surpassed 400 transactions.
Owners cashing out their firm equity have benefited from the historically favorable deal valuations that have accompanied the recent step-function rise in A/E and environmental industry mergers and acquisitions. Median valuations that were 6.02x EBITDA (earnings before interest, taxes, depreciation, and amortization) between 2011 and 2017 and 6.05x EBITDA between 2018 and 2020 grew to 7.25x EBITDA between 2021 and September 2023. Valuations for firms of scale—defined as firms with revenues of $75 million to $100 million or more— consistently reached double-digit multiples on EBITDA in 2023.
The competitive landscape for engineering firms continues to be fundamentally transformed as the industry shifts from an employee-owned capital model to a private equity-owned one. While the percentage of U.S. acquisitions completed by employee-owned A/E firms steadily declined, from 79 percent in 2016 to just 54 percent through the first two-thirds of 2023, the percentage of U.S. acquisitions made by private equity-backed firms increased from 12 percent to 39 percent over that same time period.
This great recapitalization by private equity has sparked an unprecedented consolidation of the Engineering News-Record (ENR) 500. Eighty-six percent of the 65 transactions that included an ENR 500 firm between 2021 and September 2023 involved private equity. The percentage of ENR 100 firms that are backed by private equity has soared from 4 percent in 2016 to 22 percent in 2023, while the percentage of ENR firms that are employee- or ESOP (employee stock ownership plan)-owned contracted from 75 percent to 63 percent over the same time span. Private equity investment in the A/E and environmental industry has driven valuations higher as the median EBITDA multiple paid by private equity between 2018 and 2023 (10.75x) far exceeded those paid by publicly traded companies (7.34x), employee-owned firms (4.94x), and ESOPs (4.17x).
Private equity investments in engineering firms during the second half of 2023 included the acquisition of Kleinfelder (San Diego) (ENR #42) by Lindsay Goldberg, the purchase of a minority interest in Langan Engineering and Environmental Services (Parsippany, N.J.) (ENR #46) by investment funds managed by TowerBrook Capital Partners, and the acquisitions of WSB (Minneapolis) (ENR #178) and EST (Oklahoma City) by GHK Capital Partners (Greenwich, Conn.). In addition, Horrocks Engineers (Pleasant Grove, Utah) (ENR #135) announced a strategic partnership with Trilon Group (Denver), a family of infrastructure consulting businesses supported by Alpine Investors.
While sellers are profiting from higher valuations, many buyers are doing the same from the post-transaction performances of their acquisitions. Through discussions with industry CEOs, corporate development officers, and investors and by leveraging experience in advising on over 200 A/E and environmental firm transactions, Morrissey Goodale has established what we believe to be a simple, objective benchmark—the Acquisition Performance Indicator (API)—that measures performance in four key business areas (profits, revenues, backlog, and voluntary turnover rates) a year after a deal is completed.
API results based on the more than 50 firms that submitted applications for Morrissey Goodale’s 2023 Best Post-Transaction Performance Award found that, on average, buyers have been doubling the profits of their acquisitions while increasing backlogs by 44 percent, boosting revenues by 33 percent, and reducing voluntary turnover rates by 20 percent one year after they closed on deals.
Firm leaders expect the good times to continue to roll in 2024. With backlogs, operating profits, and utilization rates at all-time highs, optimism is sky-high as well, with 80 percent of the A/E and environmental industry leaders who attended Morrissey Goodale’s Texas and Southern States M&A, Strategy, and Innovation Symposium in Houston last October expecting 2024 to be an even better year for their firms than 2023.
Following is a list of recent transactions, with ACEC members highlighted in bold.
Langan Engineering and Environmental Services (Parsippany, N.J.) announced that investment funds managed by TowerBrook Capital Partners (London) has entered into a definitive agreement for a minority investment in the company.
Provider of technology-enabled laboratory testing, inspection, and quality management services, RMA Group (Rancho Cucamonga, Calif.) (ENR #146) announced the addition of Big Apple Group (Hicksville, N.Y.), a leading testing and inspection services firm.
Geotechnical engineering firm Underhill Engineering (Charlottesville, Va.) joined multidisciplined engineering and environmental firm GEI Consultants (Woburn, Mass.) (ENR #91).
Architecture and engineering firm SSOE Group (Toledo, Ohio) (ENR #115) acquired Integrated Engineering Services (Santa Clara, Calif.), a firm with expertise in MEP, chemical and process engineering, hazardous materials, and code compliance services.
Bowman Consulting Group (Reston, Va.) (ENR #87), a national engineering services firm, acquired Dennis Corporation (Columbia, S.C.), a civil engineering, surveying, and construction management firm.
Inwood Consulting Engineers (Oviedo, Fla.), a civil, environmental, transportation, and water resources engineering firm, joined fast-growing Ardurra Group (Tampa, Fla.) (ENR #89). With the addition of Inwood, Ardurra further expands its service offerings and presence in Florida.
TRC Companies (Windsor, Conn.) (ENR #16) acquired Advanced Civil Technologies (Santa Ana, Calif.), a firm that offers project and program management, highway design, water quality, and planning and project initiation services for largescale transportation projects.
Engineering, architecture, and surveying firm Farnsworth Group (Bloomington, Ill.) (ENR #213) acquired Sterling Design Associates (Littleton, Colo.), a planning, civil engineering, and landscape architecture firm.
C2AE (Lansing, Mich.), an architecture and engineering firm offering civil, structural, mechanical and electrical, interior design, and landscape architecture services, acquired commercial interior design firm T2 Designs (Brighton, Mich.).
In another transaction, multidisciplinary infrastructure, environmental, energy, and real estate consulting firm Bowman Consulting Group (Reston, Va.) (ENR #87) entered into a definitive purchase agreement to acquire Excellence Engineering (Tulsa, Okla.), a provider of engineering, procurement, project management, and automation services to clients in the petrochemical, hydrogen, industrial, and electric vehicle industries.
Benesch (Chicago) (ENR #101) entered a new partnership with Infrastructure Data Solutions (Regina, Saskatchewan, Canada), a firm that offers infrastructure asset management optimization and decision analytics software.
Multidiscipline engineering design firm ESP Associates (Fort Mill, S.C.) (ENR #209) expanded its transportation, water resources, and public utilities services and capabilities through the acquisitions of CivilCorp (Victoria, Texas) and Ditesco (Fort Collins, Colo.).
Pape-Dawson Engineers (San Antonio, Texas) (ENR #112) formed a strategic partnership with Poulos & Bennett (Orlando, Fla.), a land planning, civil engineering, and development services firm.
Concurrent with the acquisition of WSB (Minneapolis) (ENR #178), GHK Capital Partners (Greenwich, Conn.) also completed the acquisition of EST (Oklahoma City), a transportation infrastructure engineering consulting firm.
Lithos Engineering (Denver), a firm specializing in tunnel and trenchless design and construction technology, joined multidisciplined engineering and environmental firm GEI Consultants (Woburn, Mass.) (ENR #91).
Engineering and architecture firm Prime AE Group (Baltimore) (ENR #248) acquired Jacobi, Toombs & Lanz (New Albany, Ind.), an engineering, surveying, and construction services firm that supports clients in the transportation, water resources, and infrastructure markets.