Fall brings a busy season of conferences for engineering and construction professionals, and I make a point to attend as many as I can. It’s a great opportunity to catch up with old friends and make new acquaintances. This year I had the opportunity to attend events in Chicago, Kansas City, and Las Vegas.
Sentiments in the engineering and construction markets are at an interesting inflexion point. In my 20+ years providing merger and acquisition (M&A), capital raising, and strategic alternatives advisory services to industry firms of all types and sizes, I’ve lived through multiple market cycles and the effects of the Financial Crisis. New trends have come and gone, up-and-comers (and capital/service providers) have entered and exited the market, and foreign players have come ashore and subsequently left. In short, these cycles have cycled.
We’re now at the inevitable point in the industry where the most recent growth cycle may be coming to an end. The overall construction industry has posted eight years of consistent growth. Total construction starts are projected to pull back 1% in 2019 and 4% in 2020 according to Dodge Data, and the Architectural Billings Index (ABI) is below the so-called magic 50 level. M&A activity has been robust in the sector, and earnings before interest, taxes, depreciation, and amortization (EBITDA) multiples for strong firms (especially engineering, maintenance, and services firms) remain at or above historical levels.
What does this mean for the value of industry firms and the M&A market for engineering, construction, and industrial services companies?
That all being said, if you’re considering a sale or capital raise, now is an extremely good time to start the conversation. The first and second quarters of the year tend to favor new transactions, and the election in November 2020 could cause some chop in the markets for a quarter or two.
It has been a busy, exciting, and sometimes tumultuous fall season for the engineering and construction sector, and there may be clouds on the horizon in certain segments. But M&A markets remain robust, and capital is readily available.