PwC reports record year for M&A activity in engineering and construction

Last year was the busiest year for merger and acquisition deals since 2007. 

February 20, 2015 |
PwC Reports Rise in Engineering and Construction Deals in 2014

Overall, there were 21 mega deals last year, totaling $127 billion. The greatest number of deals took place in Asia and Oceania. Image courtesy of MorgueFile/hotblack

PwC's latest quarterly analysis reported that the worldwide engineering and construction industries closed 218 merger and acquisition deals in 2014 worth more than $172 billion. The numbers are more than three times greater than 2013's total of $55 billion. Last year was the busiest year for M&A activity since 2007.  

There were four mega deals in the fourth quarter of 2014, including one valued at $35 billion. Overall, there were 21 mega deals last year, totaling $127 billion. The greatest number of deals took place in Asia and Oceania.

“Some of the significant year-over-year growth in M&A activity can be attributed to companies seeking to better position themselves for mega projects that not only require a longer commitment of time and capital, but also deeper pools of highly skilled talent,” said H. Kent Goetjen, U.S. engineering and construction leader at PwC. “The lack of available talent, which is being fueled in the U.S. by the retirement of the baby boomer generation, is driving up the price of acquisitions and will continue to do so for the foreseeable future.”

 

 

PwC analysts are monitoring several other trends that are expected to affect the values and locations of deals in the engineering and construction sector, including:

• The integration of design and consultancy firms with construction companies is well under way as the E&C industry continues to move toward full service integration. Firms are generally looking to leverage higher-value added services, such as design, while balancing out their regional exposure.

• A major driver of consolidation is talent needs, as companies compete for specialized technical expertise in high-demand segments. As an alternative to acquiring expertise, some companies are embarking upon joint ventures, but these are complicated and add significant operational risk to any project. Companies are positioning themselves to bid on larger, increasingly complex projects with new partners and non-traditional sources of funding.

• A flurry of smaller, local deals took place, particularly within Asia. Cross-border activity dropped to 22% of the total in the quarter, with most local activity occurring in Asia.

• Cement oversupply and tepid demand continue to plague the industry. Top players, in an attempt to maintain their market share and margin, continue to acquire smaller companies post-merger announcement of Holcim and Lafarge.

• The consolidation in Asia was not limited to the construction materials segment, and not all driven by overcapacity, as all segments of E&C experienced a pick-up in local consolidation. The uncertain economic outlook in China raises many concerns for inbound activity in Asia but does not seem to be hindering deal activity in the region.

Read the full report.

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