The total value of merger and acquisition (M&A) activity in the sector experienced a strong upswing from a slow start in the first quarter of the year according to the company鈥檚 Global Engineering & Construction Deals Insights for the year-end of 2017. The deal value in last three quarters of 2017 rose US$1bn compared to the same period in 2016 as companies shifted focus beyond uncertainty to opportunity across the sector.
鈥淗igher average transaction values can be attributed to the increasing size and complexity of construction projects and the resulting need to provide capable technical expertise,鈥� said Colin McIntyre, US engineering and construction deals leader at PwC. 鈥淎s industry players continue to seek value and win contracts by improving their core capabilities, M&A activity will remain strong.鈥�
He added: 鈥淲hile a rising sense of nationalism has incentivised the industry to seek inorganic growth within country borders, a weakening dollar presents new opportunities for investment in the US. As the global economy continues to grow, increasing oil prices, government deregulation, a favourable tax policy, and the potential for a new infrastructure bill will make US companies attractive targets for foreign acquirers.鈥�
The deal value in 2017 was US$93bn, 9% lower than 2016. However, excluding Q1, deal activity in the last three quarters rose slightly from 2016. Despite lower value, steady deal activity was driven by continued consolidation among strategic players and a strong global economy. Total deal value has been on an upswing due to an increased focus on reviving physical infrastructure in the US and China. Deal volume remains steady, found PwC, with 2,598 deals in 2017.
The average deal size in 2017 was US$102m, 5% lower than the three-year historical average of US$108m, however, up moderately from 2016.
There were 16 deals with announced value greater than US$1bn, accounting for 45% of the total value in 2017.
Largest of the deals was a US$5.8bn merger between Lennar and CalAtlantic to create the largest homebuilder in the US. Company leadership states that the main objective of the merger is to enhance shareholder value. Synergies are expected to generate annual cost savings of US$250m through reduced overhead and the elimination of duplicate public company expenses.
The second-largest deal was Deere鈥檚 US$5.2bn acquisition of Wirtgen Group, establishing the company as a global leader in road construction equipment.
The two megadeals announced in 2017 show the sector鈥檚 motivation to increase shareholder value through economies of scale, said PwC. 聽
PwC sees a solid platform for M&A demand into 2018. 鈥淲e see further positive tailwinds as the impact of the recently completed US tax reform crystalises and potentially trillions of US company foreign cash is unlocked to be put to work (will it be M&A?) and the long-debated US infrastructure spending bill becomes a priority in Washington. While the ultimate form or even success of an infrastructure spending bill remains unknown, strong underlying fundamentals will form the core of M&A expansion in 2018,鈥� says the report.
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