New York — The engineering and construction industry reached among the highest-recorded merger and acquisition (M&A) value in the second quarter of 2014, driven by seven mega deals (transactions worth more than $1 billion), including one of the largest deals ever announced in the sector, according to PwC US.
In the second quarter of 2014, there were a total of 39 transactions (with values of $50 million or more) in the engineering and construction industry, an increase from the 33 deals recorded in first quarter of 2014, but down from the 51 deals in the second quarter of 2013. Of the 39 deals in the second quarter, the building materials segment accounted for 33 percent of the total activity.
Total deal value soared to $67.2 billion in the second quarter of 2014, compared to $15 billion in the first quarter and $12.7 billion in the second quarter of 2013. This increase was attributable to seven mega deals announced during the quarter, which represented $60.1 billion, or 89 percent of the total deal value during the three-month period. As a result, average deal value jumped to $1.7 billion, compared to the $454 million average deal value in the previous quarter and $249 million in the second quarter of 2013.
“The engineering and construction industry is navigating around several head winds and finding opportunities to reduce costs and manage overcapacity through strategic deals,” said H. Kent Goetjen, U.S. engineering and construction leader at PwC. “The building materials segment continues to stand out, while opportunities in faster-growing and more stable pockets of the industry, particularly oil, gas and petrochemicals are gaining traction.”
Apart from energy-related M&A activity, risk aversion has continued to reduce deal flow among acquirers. Engineering and construction firms are taking a longer-term approach to human capital and technical needs while focusing on core competitive advantages.
Divestitures of non-core businesses are a recurring theme since they free up capital and can favorably impact both financials and operations. Specifically, companies in the home building segment are expected to continue to reassess their holdings as they digest recent home price levels and optimize the geographic and demographic mix of their portfolios.
Private equity activity has also remained strong and there were a significant number of privately negotiated deals during the quarter.
“Looking ahead, we expect the M&A market to remain robust as engineering and construction players continue to strive for a broad, diversified set of assets that extend globally. In addition, combining operations will also likely improve utilization rates, reduce costs and drive better pricing among suppliers,” Goetjen continued. “Balance sheets remain strong despite sector challenges and ample liquidity among major players will likely support future deal activity, as the global economic rebound continues.”
PwC’s engineering & construction M&A analysis is a quarterly report of announced U.S. 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.