Engineering and construction M&A value declines in first quarter

New York — Merger and acquisition (M&A) activity in the engineering and construction industry declined during the first quarter of 2015, after a near-record setting year in 2014, according to Engineering growth, a quarterly analysis of the global deal activity in the engineering and construction industry by PwC US. While deal value and volume declined significantly compared to the fourth quarter of 2014, the results were on-par with the first quarter of 2014, seeing only a slight decline in deal value.

The first quarter of 2015 had a total of 34 deals worth more than $50 million, which was the same number of deals announced during the first quarter of 2014. The deals were valued at $15.1 billion, declining only 6.9 percent compared to $16.2 billion in the first quarter of 2014. However, on a sequential basis, deal value dropped 72.2 percent from $54.1 billion and deal volume dropped nearly 50 percent from 64 deals. Megadeal activity (transactions worth more than $1 billion) was limited for the quarter, with only two announced deals. Those two deals, however, accounted for nearly 57 percent of all deal value — $8.5 billion — for the first quarter of 2015.

“The first quarter of 2015 was the slowest in the past six quarters, though it remained in-line with median historical quarterly totals,” said H. Kent Goetjen, U.S. engineering and construction leader at PwC. “Overcapacity across the industry in China continues to drive the majority of the deals toward the region, and an increase in the number of deals backed by financial investors are taking a larger piece of the pie than seen in previous quarters.”

For the quarter ending March 31st, there were 14 deals worth more than $50 million backed by financial investors, accounting for more than 40 percent of all deals. This is a steady increase from the fourth quarter of 2014, where 31 percent of deals were backed by financial investors, and the first quarter of 2014’s 32 percent.

Among first quarter deals, construction materials was the largest segment with 11 transactions worth more than $50 million, followed closely by construction services with 10 deals. "Oversupply has led to consolidation among cement and concrete manufacturers within the construction materials segment,” added Goetjen.

Consistent with previous quarters, regionally, Asia and Oceania had the highest number of deals worth more than $50 million, with 25 deals occurring in the region. This contributed to emerging markets (Brazil, China, India and Russia) accounting for nearly half of all deals of this size. Additionally, the number of cross-border deals fell to below 30 percent (10 deals) and the U.S. also saw a decline in activity with just two transactions taking place.

“Going forward, low oil prices, the improving U.S. dollar and rebounding European economies will likely lend themselves to support a modest expansion of deal activity, even as volatility among some commodity and currency pricing may obscure overall growth outlook,” said Goetjen. “We can also expect continued consolidation among mid-size engineering and construction firms as they scale up and build up capabilities to take on larger, more complex projects.”

PwC’s engineering & construction M&A analysis is a quarterly report of announced global transactions with value greater than $50 million analyzed by PwC using transaction data from Thomson Reuters.

For more information on PwC’s Deals practice, visit www.pwc.com/us/deals.