NEW YORK — Engineering and construction merger and acquisition (M&A) activity rebounded in the fourth quarter of 2013, boding well for increased activity in 2014, according to Engineering growth, an annual analysis of the global deal activity in the engineering and construction industry by PwC US.
“As the construction sector continues its path of recovery and construction companies re-evaluate growth opportunities geographically and in other segments like oil and gas and petrochemicals, we remain optimistic that the pace of dealmaking will continue to accelerate into 2014,” said H. Kent Goetjen, U.S. engineering and construction leader at PwC. “Today’s engineering and construction projects are more complex than ever. As a result, the rising use of design-build contracts, and the need for technical specialization and relationships in key growth regions are the main factors likely to drive activity, even in a tepid global economic environment.”
In the fourth quarter of 2013, engineering and construction deal volume and value increased to 48 transactions (with values of $50 million or more) totaling $13.2 billion, compared to 41 deals worth $10.6 billion in the third quarter of 2013. There was also a slight uptick in average deal size in the fourth quarter of 2013 ($276 million) compared to the previous quarter ($259 million).
Annually, there were 169 transactions representing $46.4 billion in the full year of 2013, compared to 180 deals worth $52.7 billion in 2012. Despite the reduced overall level of activity, deal size remained steady in 2013 and was more diversified across industries than the prior year, which was dominated by a few concentrated mega deals in the construction materials segment. Additionally, the mega deals in the second half of 2013 and a $3.3 billion deal announced in the first quarter of 2014, are likely an indicator of larger transactions in these segments going forward, according to PwC.
While emerging markets continue to serve as a main driver of global growth, potential acquirers are showing more caution as they reassess the magnitude of the deceleration in Asia, according to PwC. Regionally, Asia and Oceania represented 45 percent of deal targets in the fourth quarter of 2013, with the majority of deals involving targets in China. This trend was apparent throughout 2013 with Asia and Oceania involved in 79 deals valued at almost $20 billion, and China accounting for 26 deals in the full year.
“We saw a significant number of local deals in the fourth quarter and in 2013 overall, particularly within Asia where consolidation is driven by scale and efficiency. It’s likely that selectivity regarding cross-border deals will continue in the near term as new baseline growth rates are established in target markets,” added Goetjen.
Looking at activity by sub-sector on an annual basis, transactions in the construction materials category led early on in the year, continuing the trend of consolidation of cement and concrete sectors from 2012. However, home building and construction, the usual category leader, picked up in the second half with a significant mega-deal ($1 billion or more) in each sub-sector.
“Our expectations for increased M&A activity remain highest among companies with oil and gas and chemical exposure, but volume in these verticals will need to be significant to offset the lower level of activity we anticipate in power, commodities, government and public infrastructure segments,” said Goetjen. “In addition, the recovery in housing prices and pick up in housing formation should lead to strategic investments among homebuilders seeking desirable demographic segments and a chance to revisit and rebalance the geographic exposure of their portfolios.”
For more information on PwC’s Deals practice, visit www.pwc.com/us/deals.View All News