Engineering Inc - March/April 2018 - 54

MERGERSANDACQUISITIONS

Signs Hint at Robust Deal-making in 2018
BY NICK BELITZ

ENGINEERING INC.

MARCH / APRIL 2018

U.S. A/E M&A Activity
Trailing 12 Months Ending Jan. 31
400
Number of Deals

aking stock of the engineering industry in early 2018, the
best course of action is, quite simply, to enjoy the ride.
Last year saw robust expansion in U.S. economic
activity, most easily seen in the rise in the stock market
indices, with the S&P 500 up 19 percent, the Nasdaq up 28
percent and the Dow Jones Industrial Average up 25 percent for
the year.
The national unemployment rate is hovering around 4.1 percent, the lowest level since 2000. While U.S. economic growth
clocks in at a somewhat moderate 2.5 percent for 2017, the
expansion has been steady since 2009 and expectations are for
growth to approach 3 percent when full-year 2017 data arrives.
Focusing on just the engineering industry, the possibility of an
infrastructure spending bill clearing Congress before the 2018
midterm elections raises the potential for even more optimism.
These rosy projections have buoyed expectations for the engineering industry and deal-making has already picked up as a result;
Morrissey Goodale's tracking of engineering industry deals points
to an increasing pace of consolidation in 2018 over 2017. In fact,
while our latest data shows the number of global transactions
essentially flat over the last 12 months, U.S. deals are up 5 percent
over the same time period. At a high level, the reasons for the rise
in deal-making may be attributed to one or more of the following:
* The superior outlook for the U.S. economy and public- and
private-sector spending on engineering and design services relative to other countries.
* An escalating competitive environment in which firms large and
small are considering M&A as part of their strategic plans.
* The leadership and ownership transition challenges created by
baby boomer principals seeking to retire and divest themselves
of their ownership stakes.
These factors, plus more investment capital being made available for corporations via the Tax Cut and Jobs Act, have led the
economic intelligentsia to call for heightened merger and acquisition activity across industries in 2018. Specifically:
* JPMorgan's 2018 Global M&A Outlook calls for solid GDP
growth in all major economies and healthy equity and debt
markets to provide companies with confidence to explore M&A
transactions. JPMorgan also notes M&A will figure prominently in corporate attempts to acquire technologies and capabilities to differentiate. Regarding technology driving M&A,
we note a recent analog in the engineering industry-NV5's
acquisition of a California firm specializing in unmanned aerial
vehicles and related technology applications.
* Deloitte's M&A Trends 2018 calls for an acceleration of M&A
activity in the current year. Deloitte's survey of corporations
and PE firms reports 68 percent of executives of U.S.-based
companies and 76 percent of U.S.-based private equity firms

300
200

219

234

2015

2016

216

227

2017

2018

175
100
0

2014

anticipate greater deal flow during 2017, the latter point echoed
by JPMorgan. This is already happening in the engineering
world; note the activity of private equity firms Long Point Capital and RTC Partners in the list of deals following this column.
* PwC's Deals Year-End Review and 2018 Outlook predicted
the M&A landscape for the coming year will show companies
acquiring to remain competitive in the face of new entrants and
new technologies threatening to disrupt industries.
Time will tell whether the presumed deal-making wave materializes as expected this year, next year or at some point down the
line. What is critical for engineering firm leaders to remember,
whether as a buyer or seller, is not to get greedy when contemplating a potential transaction. We call them "transactions," but
in reality, a deal with an engineering firm is more like a marriage
than buying a new asset such as a car. Engineering professionals
need to not only work together once the deal is done but spend
most of their waking hours in the company of the other side.
A deal that fails to consider the needs and wants of both parties is doomed to failure. Even when enjoying a bull market, good
deal-makers will take time to understand the investments needed
to make the match successful for all.
JANUARY 2018

ACEC member NV5 (Hollywood, Fla.) acquired Butsko Utility Design, Inc. (San Diego), a provider of utility planning and

design services with annual revenues exceeding $5 million.
ACEC member Terracon Consultants (Olathe, Kan.)
acquired fellow ACEC member Engineered Concepts (Greensboro, N.C.), a firm that specializes in building enclosure, structural engineering and facility investigation services.
Global MEP engineering and technology consulting firm and
ACEC member Mazzetti, Inc. (San Francisco), merged with
engineering and strategic energy management firm PerryCrabb
(Brookhaven, Ga.). The combined entity will have more than 200
employees and will retain the Mazzetti, Inc., name.

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