I
n the world of investing, expectations for the future drive the movement of money in the present, with capital flowing to asset classes judged by presumably savvy investors to yield the greatest opportunity for returns. 2021 will be remembered as the year engineering firm deal-making activity in the U.S. took a step further above already elevated levels. Deal counts rose from an average of 316 per year from 2018 to 2020 to an eye-popping 420 deals in 2021. Preliminary data from 2022 indicates the industry is on track for even more activity this year. We project 450 transactions in the U.S. alone by the time the year ends. (See chart.) If engineering firms constituted an asset class by themselves, the sector would be among the hottest in the market today!
So, what expectations about the future are pushing so much capital into the industry and spurring so many transactions by ACEC deal-makers? At the macro level, we see four critical drivers at work, all of which only seem to have accelerated in the last 24 months:
1. U.S. government largesse. While the stimulus packages enacted by Congress in response to the pandemic provided one-time shots in the arm—please forgive the pun—for the economy in general and engineering firms in particular, the Infrastructure Investment and Jobs Act of 2021 will provide billions of dollars in funding over multiple years. Buyers anticipated this over the past two years and invested ahead of the bill’s passage. With the law now in place, any firm that touches infrastructure in any state or region stands to benefit, and buyers have continued to jostle for position ahead of that spending.
2. Valuations at record highs. Simply put, we’ve never seen as many sellers commanding premiums in the marketplace as we do right now. Owners and leaders of firms have peered into their futures, read the tea leaves of rising backlog and strong utilization coupled with robust near-term demand, and see rising profits leading to increasing valuations via an external sale. Related to the first point, this is especially true for firms serving any market a buyer might construe as “public infrastructure.” That goes double for firms with all or most of their operations in the southern or western U.S., where positive demographic and in-migration trends drive sustained long-term demand.
3. The tax devil that we know. Buyers and sellers pursued deals in 2021 (and still are pursuing them in 2022) ahead of any potential changes in tax law and tax rates at the federal level. While some in Congress advocated for changes to the 2017 Tax Cuts and Jobs Act after the 2020 election, no overhaul passed Congress, and buyers and sellers took advantage of favorable and known tax policy to contemplate and close deals.
4. Internal ownership transition still a bugaboo. As the baby boomer generation continues to retire (or at least tries to), firms are challenged in transferring business leadership and client connections to the smaller Generation X cohort and the younger millennial group, with many professionals in the latter category unable or unwilling to buy into their employer’s ownership group. This dynamic has led many executives to decide the time was right to make a deal with an external buyer.
The natural question becomes, when will all the consolidation end? Our answer: not soon! And likely not for years. As long as these factors remain in play—and none show signs of abating in 2022—buyers and sellers of engineering firms will continue to come together to make deals.
The following is a list of recent transactions with ACEC members highlighted in bold.
Colliers Engineering & Design (Red Bank, N.J.) acquired KFW Engineers & Surveying (San Antonio, Texas), a civil engineering, environmental, and surveying services firm.
NV5 (Hollywood, Fla.) acquired Fulton Consulting Engineers (Lake Forest, Calif.), a mechanical, electrical, plumbing design, and energy efficiency services firm.
ACES (Amman, Jordan) acquired MC Squared (Kennesaw, Ga.), a geotechnical engineering, environmental studies, and construction material testing firm.
Tetra Tech (Pasadena, Calif.) acquired Axiom Data Science (Anchorage, Alaska), a climate science modeling firm.
NV5 (Hollywood, Fla.) acquired River City Testing (Riverside, Calif.), a materials testing and special inspection services firm.
IMEG Corp. (Rock Island, Ill.) acquired The Harman Group (King of Prussia, Pa.), a structural engineering firm.
American Engineering Testing (St. Paul, Minn.) acquired Northern Technologies (Eagan, Minn.), a geotechnical engineering and materials testing services firm.
RMA Group (Rancho Cucamonga, Calif.) acquired CSI Services (Santa Clarita, Calif.), a specialty coating inspection services firm.
CHA Consulting (Albany, N.Y.) acquired A&P Engineers (Doral, Fla.), a firm with expertise in civil engineering, transportation, water resources, and CEI.
TRC Companies (Windsor, Conn.) acquired United Sciences Testing (Warrendale, Pa.), a firm that provides emissions testing services to utility and industrial clients.
Orsatti Water Consultants (Wheat Ridge, Colo.), a water, wastewater, and civil infrastructure services firm, joined environmental consulting firm Anchor QEA (Seattle).
LJA Engineering (Houston) acquired Five Points Design Group (Jacksonville, Fla.), a firm focused on roadway, stormwater, and utility design services.
TRC Companies (Windsor, Conn.) acquired ESS Group (Waltham, Mass.), an engineering firm that offers power and renewable energy, coastal engineering, and water resource management services.
ISG (Mankato, Minn.) acquired Martin Pevzner Engineering (Bloomington, Minn.), an MEP systems design services firm.
Terracon (Olathe, Kan.) acquired Wang Engineering (Lombard, Ill.), a firm that specializes in geotechnical engineering, construction inspection, and materials testing services.
MRB Group (Rochester, N.Y.) acquired Parrone Engineering (East Rochester, N.Y.), a civil engineering, environmental, and surveying services firm.
WSP (Montreal, Canada) acquired Climate Finance Advisors (Washington, D.C.), a climate and finance consultancy.
KCI Technologies (Sparks, Md.) acquired the Harrisburg office of Sowinski Sullivan (Sparta, N.J.).
Pickett and Associates (Tampa, Fla.), and its subsidiary U.S. Imaging Flight Ops, joined multidiscipline engineering design firm ESP Associates (Fort Mill, S.C.).
Plummer (Fort Worth, Texas) acquired integrated water resource engineering firm WATERMARK Engineering Group (Sun City Center, Fla.).
Jacobs (Dallas) acquired StreetLight Data (San Francisco), a specialized mobility analytics firm.
Crafton Tull (Rogers, Ark.) acquired structural, civil engineering, and surveying firm B & F Engineering (Hot Springs, Ark.).
Otak (Portland, Ore.) acquired Tarr Whitman Group (Seattle), a specialized project controls and construction support consulting firm.
Remington & Vernick Engineers (Cherry Hill, N.J.) acquired Sud Associates (Durham, N.C.), a civil engineering firm.
Woolpert (Dayton, Ohio) acquired eTrac (San Rafael, Calif.), a vessel-based hydrographic survey and marine technology firm.
Westwood Professional Services (Minnetonka, Minn.) acquired Pacheco Koch (Dallas), an engineering, surveying, planning, and landscape architecture services firm.
Resource Environmental Solutions (Houston) expanded in Florida with the acquisitions of E Sciences (Orlando, Fla.) and Sandra Walters Consultants (Key West, Fla.).
Trilon Group (Denver), a newly formed engineering services platform of Alpine Investors (San Francisco), announced its first partnership with Waggoner Engineering (Jackson, Miss.).
Ardurra Group (Tampa, Fla.) acquired and merged with Pevida Highway Designers (Miami), a transportation civil engineering firm serving the Southeastern United States.
HDR (Omaha, Neb.) acquired SPF Water Engineering (Boise, Idaho), a water, wastewater, and hydrogeologic consulting firm.
P2S (Long Beach, Calif.) acquired Power Engineering Services (Brea, Calif.), a power system studies, master planning, and design services firm.
The Lexis Group (Dillsburg, Pa.) acquired the equipment assets from Singer Utility Engineering (Yardley, Pa.).
Bowman Consulting Group (Reston, Va.) acquired Perry Engineering (Tucson, Ariz.), a firm that delivers civil engineering consulting and land surveying services.
PRIME AE Group (Baltimore, Md.) acquired Prosser (Jacksonville, Fla.), a planning and engineering firm.
RMA Group (Rancho Cucamonga, Calif.), a portfolio company of OceanSound Partners (New York, N.Y.), merged with Western Technologies (Phoenix, Ariz.) and Enviro-Drill (Phoenix, Ariz.).
Greenman-Pedersen (Babylon, N.Y.) acquired Holbert Apple Associates (Olney, Md.), a structural engineering firm specialized in new construction and renovations.
Baker Design Consultants (Freeport, Maine), a civil, marine, and structural engineering consulting firm, joined GEI Consultants (Woburn, Mass.).
AG&E (Addison, Texas) acquired Blue Ridge Design (Winchester, Va.), a firm with expertise in the precast/prestressed concrete industry.
Psomas (Los Angeles) acquired KPG (Seattle), a civil engineering, surveying, mapping, landscape architecture, urban design, transportation planning, and construction services firm.
HR Green (Cedar Rapids, Iowa) acquired LDC (Austin, Texas), a land development, telecommunications, and surveying consulting firm.
GdB Geospatial (Melville, N.Y.) announced that Geomaps International (Bethpage, N.Y.) has joined its team.
Bolton & Menk (Mankato, Minn.) acquired Fortin Consulting (Hamel, Minn.), a water resources consulting firm.
TranSystems (Kansas City, Mo.) acquired OMEGA & Associates (Chicago), a CM/PM firm with experience on transportation projects.
WGI Ventures (West Palm Beach, Fla.), the infrastructure technology arm of WGI (West Palm Beach, Fla.), acquired software firm Streamline Technologies (Winter Springs, Fla.).
Electric Power Engineers (Austin, Texas) announced an investment by Lime Rock New Energy (Westport, Conn.), a growth equity investment firm specializing in the energy industry.
LaBella Associates (Rochester, N.Y.) acquired Stieglitz Snyder Architecture (Buffalo, N.Y.), an architectural firm.
Green International Affiliates (Westford, Mass.) acquired Lumen Studio (Harvard, Mass.), a lighting design firm providing architectural lighting design services.
EnSafe (Memphis, Tenn.) acquired Progressive Engineering & Construction (Tampa, Fla.), an environmental and engineering firm.
CEC Corporation (Oklahoma City, Okla.) acquired White Engineering Associates (Oklahoma City, Okla.), a structural and civil engineering services firm.
Pennoni (Philadelphia) acquired Snyder, Secary & Associates (Harrisburg, Pa.), a civil engineering and land development firm.
The Geomatics practice of Weston & Sampson (East coast, U.S.) joined KCI (Sparks, Md.).
Civil & Environmental Consultants (Pittsburgh) acquired Hamilton Designs (Fishers, Ind.), a land surveying, site engineering, and infrastructure services firm.
WGI (West Palm Beach, Fla.) acquired Simpson Engineers & Associates (Cary, N.C.), a transportation engineering firm.
InSite Engineering (Hoover, Ala.) acquired Nelson & Company (Birmingham, Ala.), a civil and process engineering firm.
Integral Group (Oakland, Calif.) merged with Ross & Baruzzini (St. Louis, Mo.), creating one of the largest building engineering consulting firms.
Multidisciplinary engineering firm Strand Associates (Madison, Wis.) merged with civil and environmental engineering firm FOX Engineering (Ames, Iowa).
Mackay Engineering & Surveying (Cleveland, Ohio), a land surveying, civil engineering, and municipal engineering firm, joined WallacePancher Group (Hermitage, Pa.).
IMEG Corp. (Rock Island, Ill.) acquired three new firms: Architectural Engineers (Boston, Mass.); C&H Engineering and Surveying (Bozeman, Mont.); and Sitton Energy Solutions (St. Louis, Mo.).
To view the most up-to-date and “live” versions of the M&A heat maps, and to see who are the buyers and sellers in each state, go to www.morrisseygoodale.com.
Nick Belitz is a principal with Morrissey Goodale, LLC, a management consulting firm that specializes in the A/E industry and provides strategic business planning, merger and acquisition, valuation, executive coaching, leadership development, and executive search services. He can be reached at nbelitz@morrisseygoodale.com.