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Selling an Engineering Firm
20/9/2019 - Market Value
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http://emerge-ma.com/data/uploads/Industry-Report-Selling-an-Engineering-Firm.pdf

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INDUSTRY INCLUSION

SIC Code 8711, Engineering Firms, fall into what is known as the A&E (Architectural and Engineering) and sometimes AE&P line of business of the professional services sector. This information is limited only to Engineering firms and does not include Architecture firms. 

Trends in this Industry

In the next five years, activity in large engineering projects is expected to increase as more businesses become willing to commit to the long-term nature of these projects. Up to 2021, the value of private nonresidential construction is projected to grow at an annualized rate of 4.8%.

Overall interest in the construction of environmentally friendly buildings is also expected to increase, as improving corporate profitability will cause operators to invest more heavily in sustainable new structures. The new Leadership in Energy and Environmental Design (LEED) standards are becoming more widely considered in the building process, and credits for using environmentally sustainable materials will encourage new buildings to adhere to these standards.

Factors Affecting Value

Ability to quickly adopt new technology -
Technological advancements impact the capacity to compete.

Having contacts within key markets -
Firms must establish networks and a reputation among the key players in each market to be invited to tender.

Fast adjustments made to changing regulations -
Firms must understand and adapt to a changing regulatory environment.

Access to highly skilled workforce -
It is important that firms attract and retain a highly skilled workforce.

Marketing of differentiated products -
Firms must be able to undertake a broad range of engineering services.

Strong management team -
Owner manages rather than “works”.

M&A Activity for Engineering Firms

We have data on 169 closed transactions since 2013 alone.

Only 15 of the 169 announced closed transactions exceeded $100 million in deal value. There is a large market for regional, niche and sub $100 million firms. The top 3 acquirers closed 7, 4, and 2 transactions respectively - evidence that there is a tremendous number of buyers in the market for Engineering firms.

There was also a significant number of consulting firms (SIC codes 8742 and 8748) acquiring Engineering Firms with 17 deals since 2013. Furthermore, MEP companies are acquiring engineering firms to broaden their services, enhance in house design build capabilities and reduce reliance on “outsourcing” engineering services.

eMerge’s internal and proprietary Buyer List for Engineering firms includes 175 Strategic Buyers, plus the Buyers of the 169 announced closed transactions, plus 110 Private Equity Group’s with a stated interest in acquiring an Engineering firm.

eMerge M&A's internal and proprietary Buyer List for Engineering Firms has a total of 481 Buyers.

Market Segmentation                                 

  • 49.1% Private businesses
  • 30% Government bodies
  • 6.1% Engineering firms
  • 5.6% Architectural firms
  • 5.1% Construction firms
  • 3.3% Individuals
  • 0.8% Non-profit organizations

Revenue Breakdown

  • 21.1 % Industrial and manufacturing projects
  • 10.8% Energy projects
  • 10.2% Project management services
  • 9.3% Transportation projects
  • 3.8% Municipal utility projects
  • 3.6% Hazardous and industrial waste projects
  • 30.9% Other projects and services

Employment Breakdown

  • 84% 1 to 10
  • 10% 10 to 25
  • 4% 25 to 50
  • 2% 50 to 100
  • 0.65% 100 +

Additional Data on Closed Transactions on Engineering Firms:

  • 18 transactions were stock sales
  • 9 transactions were assets type sales
  • Revenues ranged from $2.5M to $91.8M and
    EBITDA for the sale prices ranged from 2.1X to 32.7X.

Engineering services is a highly fragmented market consisting primarily of regional and niche firms. There is a huge opportunity - more so than most industries - for Baby Boomers to cash out at a premium.  Industry consolidation is occurring; the longer an owner waits, the lower the prices the market will pay.