Infrastructure program potential driving uptick in AEC M&A

Dive Brief:

A study by FMI Capital Advisors found that projected growth in U.S. infrastructure spending will continue to drive mergers and acquisitions in AEC, Engineering News-Record reported.
FMI tracked 50 M&A deals in Q2 2017, including AECOM's $175 million purchase of Shimmick Construction. The labor shortage is also driving the M&A market as companies look to combine resources and expertise in areas like automation and prefabrication, specialization that could help combat a tight supply of workers.
Any meaningful traction on Trump's $1 trillion proposed infrastructure program is likely two or three years away. However, more use of public-private partnerships and design–build by government agencies now is a signal to the private sector that they need to gain that know-how, and M&A transactions are a way to achieve that.

Dive Insight:

Trump's infrastructure proposal has not yielded much in the way of actual projects, but the buzz continues, and companies like AECOM and Jacobs Engineering are positioning themselves to be ready when the time comes.

Earlier this year, AECOM said it was preparing to launch a five-year, $3.5 billion spending run in an effort to become the biggest infrastructure firm in the world. Acquisitions and organic growth were central to the plan, whose focus on North America is as much a response to Trump's expected proposal as it is to slowing world economies and increasing geopolitical turmoil.

A month later, in April, the company announced plans to form a new business division devoted to federal contracting. The company tapped former Kiewit Corporation executive Vern Kuehn to head up the new unit. It will advocate for increased federal use of the design-build and integrated project delivery (IPD) methods.

The company has also been aggressive in proposing and securing work. Around the time of its multibillion dollar program news, the company sent the Treasury Department a $200-billion list of water and infrastructure projects that it said could have an economic impact of up to $1.3 trillion.

AECOM also wasn't shy about inserting itself into what was almost a one-company lock on the new $1 billion Kansas City (MO) International Airport terminal project. Local engineering firm Burns & McDonnell had proposed to privately finance the project, but after that plan was made public, AECOM made its own IPD proposal to the Kansas City Council. That pushed the council to put the project out to bid, and it is now considering proposals from four construction and development teams, AECOM and Burns & McDonnell included.

The company isn't alone in its growth ambitions. Earlier this month, Jacobs Engineering announced plans to buy CH2M Hill in a $2.85 billion deal. The combined firms expect to see annual revenues of $15.1 billion, rivaling AECOM's $17.4 billion in 2016 revenues.