NEW YORK — While overall 2012 merger and acquisition (M&A) activity in the engineering and construction industry did not meet levels seen in 2011, an uptick in fourth quarter activity points to signs of recovery in the industry, according to “Engineering growth,” a quarterly analysis of the global engineering and construction industry by PwC US.

“With the continued elevated level of uncertainty through the end of the year, we saw many deal makers staying on the sidelines or engaging in smaller, bolt-on acquisitions. However, as the global engineering and construction sector continues on its path of slow recovery, we remain cautiously optimistic and expect the M&A arena to follow a similar trajectory of modest growth in 2013. Growing infrastructure needs, expanding urbanization, and the need for cleaner, environmentally friendly and sustainable energy and water continue to be the driving forces of M&A activity in the sector,” said H. Kent Goetjen, U.S. engineering and construction leader with PwC.

In the full year of 2012, there were 168 deals (with values of $50 million or more) totaling $49.3 billion, compared to 181 transactions worth $73.3 billion in 2011. While overall 2012 M&A volume and value declined over 2011 levels, the sector did see increased activity in the fourth quarter of 2012. There were 57 deals in the fourth quarter alone totaling $13.9 billion, an increase in value and volume compared to the third quarter of 2012, which saw 31 transactions totaling $10.8 billion, as well as the fourth quarter of 2011 with 36 deals totaling $13.1 billion. There was only one mega deal (with value of $1 billion or more) announced in the fourth quarter of 2012, and mega deal activity in 2012 remained lower than 2011 levels, largely consistent with the overall slowdown in deal making in 2012.

Despite the slowdown in engineering and construction deal making, financial investors continue to slowly gain momentum. In 2012, the participation of financial advisors was higher than the average 10-year rate of about 33 percent of financial acquirers and they were an active participant in some of the largest deals during the year, potentially suggesting signs of recovery and opportunity in the sector. “The increased activity among financial investors could be considered a reaffirmation of the ongoing rebound of the sector. Solid private equity fundraising is a potential factor contributing to the trend,” added Goetjen.

Transactions in the construction materials category led deals in the full year of 2012 in both value and volume with 46 deals over $50 million totaling $16.57 billion, outnumbering the construction segment, the usual leader and second in terms of volume in 2012. Multiple large and mega deals throughout 2012, including the only mega deal in the fourth quarter, involved targets associated with the construction materials segment, contributing to a 70 percent increase in value in the segment’s deals over 2011.

“M&A in the construction materials segment was largely driven by high investor interest in targets in the cement and concrete business,” added Goetjen. “Additionally, as the construction companies reevaluate growth opportunities in markets and segments farther from home, the pace of deal making is expected to pick up.”

The majority of engineering and construction transactions in 2012 were local deals, for both U.S. targets and targets and acquirers from other parts of the world. Asia and Oceania remained the most active region in engineering and construction deal making, representing 68 deals totaling $15.09 billion in 2012, followed by Europe and North America. The United States was the most active individual nation, having engaged in the largest number of deals but also tended to generate higher deal values due to the relative maturity, size and financial stability of U.S.-affiliated dealmakers. Adding to that, the abundance of shale gas in the U.S. has resulted in increased interest in related end-markets — a trend that is likely to continue in the quarters to come as gas becomes the most economic and environmentally friendly fuel.

The slowdown in overall M&A activity has also affected the total value and volume of BRIC-affiliated deals, with the 2012 deal volume significantly lower than 2011.

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