The Merger and Acquisition Imperative Introduction
CONSTRUCTION QUARTERLY UPDATES |
In spite of one of the worst construction markets in a generation, there is one area within the industry that has continued to grow. Mergers and acquisitions in the engineering & construction (E&C) industry approached a multi-year high in the fourth quarter of 2012.
The past five years have constituted one of the most challenging periods of time in recent memory for E&C companies. Exhibit 2 in the white paper document illustrates the precipitous decline in construction put in place, with overall construction spending declining by 28 percent since 2006, and even steeper drops in residential and non-residential building construction. This has prevented E&C firms from fully replacing backlog or generating the profits required to sustain and grow their businesses, as shown in Exhibit 3 below, with revenue and earnings declining by 4 percent and 14 percent, respectively, between 2009 and 2010.
In spite of the challenging environment, M&A activity in the sector has increased. Generally speaking, these are not distressed, surety-driven transactions, but healthy companies that are combining. Why is that? While each transaction is unique, there are a few explanations.