Mergers and acquisitions among engineering and construction firms in 2018 are expected to continue to accelerate beyond 2017’s already active pace according to FMI Capital Advisors, Inc., Denver, CO, which posted a whitepaper summarizing its analysis and survey work on the subject.
One of the largest drivers of the M&A activity is the demographic need for succession as owners of the baby boomer generation seek to retire, the study said. Nearly 70% of respondents to an FMI survey said acquisitions are a part of their current growth strategy, compared to 60% in 2017.
Public companies with access to capital markets drove a lot of the activity, the group said. “More than 20% of all M&A transactions in the E&C industry last year had a public company buyer, the highest level since 2011. We expect this trend to continue further into 2018.”
Other drivers mentioned included expectations of a surge in infrastructure investment and interest among foreign companies and private equity investors in gaining a foot-hold in the North American construction markets.
On the construction side, mechanical and electrical construction and service companies were prime targets of consolidation platform companies in the HVAC and refrigeration market and a convergence of energy service companies (ESCOs) with traditional mechanical and electrical construction and service companies added to the deal-making fervor.
FMI said it has also seen increased interest in employee stock ownership plans as an alternative exit strategy for boomer-age owners.
“Over the past few years, ESOPs have become a more popular exit vehicle for owners of construction companies, not only due to the significant tax and economic incentives for the sellers, but also because of the cultural, legacy and employee benefits an ESOP can offer,” said Matt Drake, director at FMI Capital Advisors and head of FMI’s ESOP Advisory Practice.