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Recent reports indicate that c. two-thirds of baby-boomer entrepreneurs in the engineering and construction sector do not expect to pass their company down to the next generation1. This factor has caused an increase in the number of available targets in the M&A market in Europe and the US. At the same time, large firms in the engineering sector increasingly include acquisitions in their corporate strategy. This desire for consolidation can be explained by firms’ needs to strengthen their ability to offer integrated project solutions, acquire scarce talent and broaden their geographic presence.
An increasing number of clients look for engineering companies which offer one-stop shop services. Comprehensive outsourced solutions offered to clients provide them with increased efficiencies, better quality control, as well as the capacity to fully focus on value-added tasks. To have the ability to tackle such projects from start to finish, engineering companies have been looking to achieve vertical integration through inorganic growth, particularly in digital and connected technology. These transformative acquisitions allow engineering companies to offer end-to-end solutions and to take advantage of cross-selling opportunities.
Moreover, as projects increase in complexity, engineering firms require deeper technical knowledge from their staff. In order to win the talent war, these players strategically screen for targets which employ expert engineers focused on specific and innovative fields. This allows buyers to remain competitive in a market where competitors are threatened by losing bids as a result of talent scarcity.
On another note, for several years, engineering groups in fast growing economies, such as India and China, have been expanding their services internationally in order to diversify from their domestic market. In several cases this geographic expansion has been achieved by means of inorganic growth (acquisition of in-tech GmbH by Beijing BDStar Navigation Co., among others). This trend continues to stimulate M&A activity within the sector in Europe.
Finally, private equity funds are showing increased interest in companies within the engineering sector as well, particularly in maintenance and service firms. This interest stems from the development of Industry 4.0 projects and from an increase in projected infrastructure spending. In fact, infrastructure spending is expected to reach c. $94tn worldwide by 2040 to meet rising demand1. This demand is caused by urban development in developing economies, as well as the need to upgrade existing infrastructure in order to accommodate new technologies and alternative energies in developed economies. For example, forecasts estimate that smart cities spending will reach $158bn globally by 20222).
In recent years, these factors have contributed to the rise of M&A activity across Europe. This is particularly observable when looking at average transaction size. For instance, between 2016 and 2018, the number of relevant transactions completed in the European engineering sector declined from 164 to 92. However, average transaction size spurred from €79.4m per deal in 2016 to €296.3m per deal in 2018. As projects increase in complexity, the need for transformative acquisitions increases as well. These elements confirm a rising appetite from large groups. In Europe, this is the case particularly in the UK and France, with 127 and 97 major deals concluded in the past 3 years, respectively.
Between 2017 and 2018 European M&A activity led to rising average transaction multiples, from 0.93x to 1.11x Revenue, and from 11.06x to 11.67x EBITDA. Looking forward, we can expect this trend to continue, as the market is consolidating, and the demand for attractive targets keeps growing.
1 FMI Capital Advisors – 2018 M&A Trends reports
2 IDC (Michael Shirer) – July 2018 article
|Transaction date||Target||Target Country||Segment||Buyer||Buyer country||Sellers||Transaction value (€m)||EV/Revenue|
|03/2019||Société Anonyme Belge de Constructions Aéronautiques||Belgium||Design and engineering||Dassault Aviation||France||Fokker Technologies Holding B.V.||7.5||0.3x|
|11/2018||Inzpire Group Limited||UK||Defence||QinetiQ Group plc||UK||-||22.6||1.8x|
|10/2018||CCS Customer Care & Solutions Holding||Switzerland||Electronic design||GPV International A/S||Denmark||Patrimonium Private Equity Advisors AG||107.2||0.57x|
|05/2018||Acro Aircraft Seating||UK||Aerospace engineering||Zhejiang Tiancheng Controls Co., Ltd. (SHSE:603085)||China||Zhejiang Tiancheng Tech-Investment Co., Ltd.||64.2||-|
|04/2018||Carbures Europe||Spain||Design and engineering||Airtificial Intelligence Structures, S.A. (BME:AI)||Spain||T. Rowe Price Associates, among others||106.5||1.37x|
|04/2018||Saab AB||Sweden||Defence||-||-||FAM AB||34.1||1.40x|
|01/2018||Groupe GINGER||France||Civil engineering||EMZ Partners||France||Groupe Siparex||150.0||-|
|12/2017||Chicago Bridge & Iron Company||Netherlands||Design and engineering||McDermott International, Inc. (NYSE:MDR)||US||Magnetar Capital, among others||3,761.1||0.63x|
|11/2017||Horlemann Elektrobau||Germany||Civil engineering||VINCI Energies S.A.||France||-||109.0||1.09x|
|10/2017||Compañía Española de Sistemas Aeronáuticos||Spain||Aerospace||Héroux-Devtek Inc. (TSX:HRX)||Canada||Airbus Defence and Space SA||137.0||1.46x|