Engineering Services M&A Trends: Private Equity’s Impact on the Market
The Engineering Services market is witnessing a wave of consolidation fueled by powerful industry tailwinds and an influx of investor interest. According to the BGL Engineering Services Insider: Powerful Industry Tailwinds and Influx of Investor Interest Fuels Deal Activity report, institutional capital is flowing into the sector at an unprecedented rate, with private equity (PE) participation accelerating rapidly.
Between 2015 and 2023, new PE platform investments and PE-backed add-on transactions surged from approximately 20% to nearly 50% of total deal activity. This influx has intensified competition for deals, pushing purchase multiples upward.
Tim Schmitt, Chief Development Officer at Parsons Corporation, noted the robust nature of this trend, highlighting the growing role of private equity.
“Clearly, private equity has played a growing role because some ESOP-owned or employee-owned firms like to preserve their brand and would prefer scenarios when they can roll 20% or 30% of the equity but still get a decent payday,” said Schmitt
However, Schmitt also indicated a slight slowdown in deal activity in 2023. He shared, “A lot of engineering firms are sitting on decent backlog, see a lot of growth potential over the next two to four years, and are trying to build up their financial profile before exiting when there are still good tailwinds.”
Despite this, he emphasized that M&A activity remains robust in the sector, and valuations have primarily held steady.
According to Tom Secker, SVP of Corporate Development at Trilon Group, the deal landscape is “extremely competitive,” which is keeping valuation multiples in the Engineering Services space robust.
“Increasingly, a lot of the larger publics have the healthiest balance sheets they’ve had in quite some time, so those firms are now trying to do more M&A in addition to continued strong interest from private equity,” he added. Because of that, multiples haven’t cooled off in any material way.”
Secker foresees this trend continuing as everyone senses the same tailwinds around the coming spending. He also noted that many firms see M&A as an opportunity to grow and service their backlog, which is near an all-time high.
Inside the full BGL Engineering Services Insider report, the firm’s Industrial & Infrastructure Services investment banking team offers a comprehensive understanding of the impact of the Infrastructure Investment and Jobs Act on the engineering industry and the market trends shaping its future. Download the full report for more details and deeper insights into the current M&A landscape in the Engineering Services market.
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