January 14, 2025 • 34 mins
We're excited to kick off season three of the FMI Built-In Podcast with FMI Capital Advisors Managing Director Alex Miller. He joins FMI Consulting President Scott Winstead to talk about themes driving mergers and acquisitions (M&A) activity in the engineering and construction market in 2025. We'll look at what areas might be hot, considerations for companies thinking about M&A and other trends to help inform your thinking.
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Episode Transcript
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(00:00):
Welcome to 2025 for the FMI Built-in Podcast.
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I'm excited about what we have in store for this year and really excited about my conversation
with Alex Miller regarding our 2025 M&A overview.
Alex will touch on what we saw in 2024 across the broader M&A landscape and within the built
environment as well as what we think will likely play out in 2025.
Alex is a Managing Director with our FMI Capital Advisors Group and Co-lead of our Contractors
(00:30):
and Construction Services Group.
Alex welcome to the show, thanks for being here again.
Thanks Scott, I appreciate it.
Happy New Year's to you and happy New Year's to everybody listening to this.
Why don't we start off Alex if we could and just do a bit of a look back to look forward
as we're going to talk about our M&A outlook and what we think we'll see this year.
I'm curious from you and your team's perspective, what did 2024 look like and how did 2024
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shape up from an M&A standpoint?
Yeah, so I think I read somewhere that 2024 is going to end up a lot like where it started,
which is with a lot of promise and opportunity, maybe not with the same level of results as
people were expecting.
I mean, overall, big picture not just within the E&C industry, but 2024 was an average
(01:15):
M&A year in the US heading into 24.
We were coming off of two years of declining activity.
The market seemed like it was really poised to bounce back and have a very strong year.
I think a lot of people going into the year felt like 2024 was going to see just a rip
of activity.
But I think the same headwinds that we face entering the year, which is economic uncertainty,
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uncertainty over monetary policy, increased regulations, all of those things really remained
somewhat unresolved until later into the year.
To be fair, the market does itself a little bit of disservice when it talks about M&A,
because as we think about 2022 and 23, we're pegging that off of 21, which was really
just an outlier in terms of activity.
(01:59):
2021 saw more activity both in the E&C space and then more across all industries.
It just saw a record level of activity.
What we've seen over the last three years is really kind of steady, what some might
call disappointing, what I would call kind of average level of activity, but we do feel
like, especially as some of those headwinds kind of got resolved in the second half of
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the year, that we're poised to really see a lot more activity coming out here early
in 2025.
So, Alex, I appreciate the broad perspective on the overall M&A landscape.
I'm curious what you observed last year with respect to just the E&C sector.
Yeah, so as I mentioned before, 2024 was a fairly average year across all industries,
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but one of the honestly bright spots continues to be the E&C industry.
E&C activity, the latest we can track activity through is about November.
Through November, year over year, 24 compared to 23, E&C activity was up probably 13% in
total deal counts.
We are seeing more and more activity and most of that honestly is overwhelmingly and what
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we would call kind of the middle and lower middle market, smaller to mid-sized firms
being acquired.
I mean, I can only think of a handful of deals that exceeded a billion dollars in total deal
value.
If you look at other industries that are really driven by these large mega deals that get
all the headlines, our industry continues to see a lot of consolidation, a lot of activity,
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and most of it taking place within what we would consider to be kind of these middle
market transactions.
One of the things that we really think is driving this activity is just the level of,
I don't know if I'd call it sophistication, but I'd certainly call it just interest across
the industry from buyers in general.
I mean, about a decade ago, I started doing a survey for FMI where we would survey periodically
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buyers in the E&C industry.
The thought at that time was that buyers really drove activity in our space compared to other
industries.
So, I think about other industries that traditionally have grown through acquisitions and were probably
ahead of our space in terms of using acquisitions as a lever for strategic growth.
What really drove activity was macroeconomic environment.
(04:19):
What really drives activity is the quality of the sell side or the sellers that are out
in the marketplace.
But for us in the E&C space, it was always, you know, how much buyer interest do we have?
Ten years ago, if we took out a really, really attractive engineering and construction asset
into the marketplace, we weren't guaranteed to get a lot of buyer interest out of that.
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Today, we're more guaranteed for a really quality asset that we're going to get that
buyer interest.
And I think we see that because of two things, right?
One is, I know we're going to talk about this later, that there has been a significant increase
in private equity activity into the E&C industry.
And so that obviously creates just a whole nother universe of buyers that exist out there.
(05:02):
And then kind of piggybacking on that as strategic buyers saw what private equity firms were
doing, you know, they've become more sophisticated as well.
And they have certainly begun using M&A as a growth driver much more than they did probably
a decade ago.
So, like I said, 2024 was a great year.
Total activity was up across all spaces.
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And we'll talk about what those are really driving and where some of that activity really
existed.
But one of the unique things that we're seeing is just buyers increasingly looking at M&A
as a driver for strategic growth within their business.
Kind of shifting focus now and moving forward as you look out over 2025 and the M&A landscape,
what are some of the themes that you think are going to drive deals in the coming year?
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I think about this two ways, right?
We think about it in terms of themes and then the types of companies that are really generating
a lot of activity and a lot of interest today.
Look, we're going to continue to see activity and those large macro themes that we've been
talking about.
And I know this is somewhat a rehash of what we talked about last year.
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But the fact is, is that the same things that are driving activity, they tend to sustain
driving activity for a while.
For example, we've talked about continuing this on-shoring and reshoring and manufacturing
capacity and advanced manufacturing being the big theme there.
The amount of advanced manufacturing capacity that we're putting in place or have put in
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place over the last several years is creating renewed interest in the firms that design,
build and maintain those facilities.
Certainly the focus over the last year or two has been on putting new capacity into place
as that shifts.
We're going to start looking at activity for those that are really on the O&M side who
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are living in and operating and focusing on keeping this manufacturing capacity running.
Another major theme that we've talked about a lot is the electrification and electric
infrastructure.
We put those two together.
But if you think about the amount of spend that is going to have to go into billions of
dollars that are being spent to upgrade, replace, expand outdated assets on the grid resiliency
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side, and if you think about the amount of capacity that we're putting in place on the
data centers, I know Jay will be on here next month.
One of the themes I'm sure he will talk about is the amount of construction put in place
going into data centers specifically.
You think about all the opportunities that come from that, the service, the design.
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One of the things that I want to talk about a little bit later is the amount of capacity
that we are starting to build in a modular or prefabricated setting and what is that
doing to the M&A environment as well.
Another theme that we've talked about before that is very similar to this is the energy
transition theme.
Obviously, there are questions I think in that market, but we are, as we look to, what
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will a new presidential regime feel like in that marketplace?
But we are seeing a multi-decade transition as it relates to energy transition.
We're going to see continued consolidation of traditional energy sources.
I think the downstream and traditional energy environment was actually a good M&A year last
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year as we see just consolidation within that matured market.
Then we're seeing, again, a ton of activity in and around the emerging market as it relates
to the energy transition.
I think that's another area that we'll see maybe a different shift of activity, but continued
sustained activity.
Then the other theme that we always point to is this aging infrastructure.
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Water, roads, bridges, dredging.
These are all examples of areas where we have seen a lot of M&A activity.
We know that there is a lot of spend and it's an area where I think we'll continue to see
more and more deal flow in 2025.
I know I've talked about this before, Scott, but one of the things that we just like to
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point to is what is driving this M&A activity within the E&C space?
One of it very much is that sophisticated capital is looking to figure out how do we
invest in these themes?
How do I invest in aging infrastructure, which we know is an issue and we actually have federal
and state budgets that are now prepared to deal with that issue?
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How do I invest in electrification and an aging grid and an aging power delivery system?
How do I invest in onshore and reshoring?
Increasingly, firms are looking to the E&C market as a way to invest in those themes
and to back the companies that are going to be part of the solution to solve these problems
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over the next several decades.
Those are probably the big themes.
Then when we think about it specifically in terms of what types of companies are we seeing?
The types of companies that are getting a lot of interest today are, I would say, obviously
those that deal within those themes, but then specifically the architecture and engineering
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space has seen just a tremendous amount of activity recently.
Certainly, if there are firms that are touching on environmental or aging infrastructure or
energy transition.
There's a premium paid there and there's a more interest that exists because we get
two for one.
We get the type of company that's drawing the interest as well as the theme that people
(10:28):
want to invest behind.
Within that AEE space, we are still seeing a ton of activity even if you're not touching
that.
If you're just in a traditional vertical construction space, there is still a lot of activity that
exists out there.
It's an area where there are dozens of private equity platforms that are looking to consolidate.
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What firms really point to and where buyers are really attracted to on the AEE space is
even if you're not touching one of these, I would say, mega or macro trends that we
keep talking about, as long as you are tied to an industry where there is sustainable long
term spending trends.
Think about that in terms of higher ed or healthcare or other education oriented building
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buildings.
That still generates a lot of interest because it's the business model that people want to
invest behind and it's in an area where they can see a multi decade spend that will take
place.
Within the construction side, the two areas where I point to that we saw a lot of activity
last year and these are just interesting tidbits, but within the mechanical, electrical, and
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plumbing trades, we continue to still see a lot of activity.
In our contractor and construction services group, we track all transactions that take
place throughout the year.
Nearly 30% of the contractor and construction services deals that we tracked were MEP last
year.
It is an area that continues to see a lot of interest all the way from traditional project
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based mechanical and electricals to those that are more on the service side.
Then obviously those that are touching some of those themes we talked about before in terms
of electrification and advanced manufacturing and other areas.
Then I'd say the third thing I'd point to where we just saw a lot of activity and expect
it will seem more is in the roofing space.
I told you 30% of all contractor deals that we tracked last year were MEP, well 10% of
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them were roofing.
It is an area that private equity has invested behind heavily because they see this inability
to defer spend too long in that space.
The re-roofing market creates a pretty unique opportunity for a reoccurring revenue base.
We're seeing that theme now play out across the entirety of what I would call that exterior
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building solution.
Waterproofing and sealants and concrete and masonry restoration are all services that
when you own a expensive asset like a building and we see increasing weather events, we see
increasing regulation about a desire to not lose a lot of energy that is taking place
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within the building.
It's increasing the spend that takes place on that building envelope.
We're seeing a lot more activity in and around what I would call exterior building solutions
as well as another type of company where there's a lot of interest and activity.
Alex, I appreciate the perspective on themes and then some of the sectors within those
themes.
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Are there any that we haven't talked about that you think you really see shaping this
year's M&A activity?
Yeah.
I mean, I think there's a few more that we can point to.
And again, we're cherry picking a couple of things that we're seeing here.
I'll point to two other themes that we're seeing.
First I would say that we have had a relatively quiet period of time in terms of international
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interest in the E&C market in the US.
I think the firms that wanted to get here were here and some of those were dealing with
the assets that they had owned and we're working through some of that.
And over the last probably six months, we have seen significantly increased interest
from international firms similar to what we saw probably 10, 15 years ago across the
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world who are looking at the United States as an open market with pretty strong growth
trajectory across a number of different sectors that can be in the both civil, the building
and the industrial side of our market.
And so we are seeing more international interest than we have over the last few years.
The last theme that I want to talk about and maybe just touch on here is, and this is one
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of those themes that I think we have at FMI talked about ever since I joined many years
ago, which is just this continued kind of integration and shifting benefits and models
within the E&C supply chain.
One of the areas that I really do want to talk about where I think that we're going
to see more and more and more M&A activity is in and around kind of the vertical integration
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within the actual construction of especially industrial facilities.
And I know that our consulting side has talked a lot about the increased use of prefabrication
and modular solutions to augment both shortages in the labor side of our market, but then
also to enhance speed and certainty for the owner, we are increasingly seeing firms look
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to acquisitions and M&A as a way to either acquire or augment or expand their existing
offsite capabilities.
And I think this one's going to have pretty interesting implications for the construction
market specifically.
So what I think has driven this in large part is we talked before about the amount of data
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centers and advanced manufacturing and those being really probably two of the shining stars
over the last two years of construction put in place.
And I know Jay will talk about that next month.
Well, when you think about advanced manufacturing and data centers, what are the things that
the owners are demanding of their general contractors and their trade contractors?
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They're demanding speed and certainty of execution.
It's the old, you can have price, you can have speed, and you can have quality, you
can have two of the three, you can't have all three.
Well, in those markets, those owners are saying we demand speed and we demand quality.
And so what we are seeing is in large part general contractors who are looking to figure
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out, okay, well, if the owner wants to build an immodular solution, we need to be able
to acquire this capability.
Well, if you think about that, who has been leading in our industry for the last many,
many years on offsite?
What's been the trade contractors?
This is self-performing trades that built prefabrication capabilities.
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That is now being shifted into, hopefully, modular capabilities that can then accelerate
schedule, guarantee a higher level of certainty, certainly augment what is a continued labor
shortage within our industry.
And so what I think we're going to see is we're going to see more vertical integration
within that, right?
There are large general contractors that exist out there today that are looking to augment
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or acquire modular offsite capabilities and will likely have to look at acquiring some
self-performing capabilities to figure out how to do that as those go hand in hand.
And so I think that the integration of design and construction will continue to increase,
the integration of general contractors with self-performing or offsite capabilities will
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continue to increase.
And I think that the ability to do that organically firms have found out is really challenging.
If we think that the world is going to move into this more kind of integrated or especially
in some of these advanced markets and more integrated delivery, I think we're going to
see M&A and acquisitions as the conduit to really acquire that capability.
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Thanks, Alex.
Just to illustrate some of these examples, are there recent transactions that you would
point to that are reflective of what you just shared?
I think early last year we represented Obayashi and their acquisition of MWH.
That's a really interesting transaction that touches on a couple of themes that we mentioned
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above.
The first is, is that obviously Obayashi is a large Japanese E&C firm.
So it, as I mentioned before, there's increased international interest in the U.S. market.
MWH is the largest design build firm focused on water infrastructure in the United States.
And so if you think through that, well, where is one of the areas where we see the most
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spend and especially to address in the aging infrastructure, it's in the water space and
the treatment, but then also in water and the delivery and in the transmission and distribution
on the water side.
And then the third theme that that touches on that I know we're going to talk about in
a little bit here is continued sustained interest from private equity firms, right?
MWH was owned by a private equity firm.
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This was the construction side of the legacy MWH engineering business that had been owned
by private equity.
And Obayashi acquired that business to continue to expand and grow within their water construction
exposure.
Another really large deal that was announced last year was Qantas acquisition of Cupertino.
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Very, very interesting transaction and really touches on the electrification theme that
we talked about touches on the data center theme.
I mean, this was clearly Qantas desire to move into and to expand their capabilities
in the data center world.
So really interesting trend there.
And then also obviously clearly, I mentioned before that 30% of all construction deals
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tended to be in that mechanical electrical plumbing trade.
Obviously one of the larger electrical services providers that existed in the United States.
So Alex, I appreciate the perspective on some recent transactions and what you're seeing.
I know you love getting this question because it's almost unanswerable, but with respect
to valuation, what are you seeing right now with respect to buyers and sellers and how
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they're approaching this market?
You're right, Scott.
It is almost an unanswerable question.
And it's honestly, it's a difficult question because if you think about the E&C industry,
there is just a wide variety of types of companies that exist, right?
And the value for any of those companies can just be very, very different.
And we can talk about what drives value in our industry in terms of the segmentation
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of revenue, recurring versus project based or fixed price versus T&M.
But to answer your question, one of the things that I didn't mention when we did that 24
recap and talked about the activity that we saw in 2024 is that activity is certainly
down a little bit from that 2021 peak level.
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However, value is held pretty close to where it was at that peak level.
I mean, firms are still generating very strong value.
It has come, obviously, the level of interest and buyer appetite that we have in our space
is a big conduit, a big driver of that valuation.
So we're seeing valuation that is holding and is still very, very strong to the levels
that we saw a couple of years ago.
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What has changed is, I think, the risk appetite from buyers.
So buyers recognize that they're not able to get a discount today.
They're going to have to pay a full valuation.
They're going to have to value the business in the same way they would have three years
ago.
What has shifted is, is that their willingness to depart with that capital is becoming increasingly
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harder, meaning that, you know, I joke that in 2021, buyer would have closed the transaction
with 10 questions.
Today, they're going to ask 100.
If they would have asked 100 today, they might ask 1,000, right?
I mean, we are seriously seeing buyers that are moving much more diligently and much slower
through diligence periods.
I think we saw that across.
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I mean, if you read any M&A, you'll see that across all sectors, but in our space in particular,
buyers remain very interested, very focused, values are holding.
But I think that we're starting to see, at least in 24, a level of risk that's not being
priced into value, but is being kind of played out in the diligence that buyers are undertaking
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to justify that value.
Now hopefully in 2025, we start seeing that with increased activity, with increased focus,
with renewed strategies, that maybe we can move a little bit more efficiently through
these transaction processes.
But certainly, I would say value has not come down, but buyers are going to have to work
a little bit harder to justify that in today's current environment.
(22:37):
Thanks, Alex.
You've referenced private equity a couple of times.
Sharius, what role do you see financial sponsors playing in the market in 2025?
I think there's a straight way to answer that, and then maybe a more nuanced way to answer
that.
The straight way to answer that is that private equity firms are now a participant in the
engineering and construction M&A marketplace, and there's no going back.
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We talked before, they are looking to our industry as a way to invest in some of these
macro themes that our industry is going to be a large part in solving and addressing.
In the construction space in particular, I mentioned before that our team tracks all
contractor and construction services deals that take place in the United States.
Nearly 50% of those deals tracked were acquired by a private equity firm or a private equity
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owned firm.
It is a major player within the construction space.
I think if you look at the A&E business, it would actually probably be larger.
I would suspect that that percentage is actually higher on the A&E side.
The private equity is going to continue to be a participant in our industry.
The other thing that private equity is doing, as I mentioned before, is that I think that
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it is opening the eyes of strategic buyers.
I think that our space in particular, strategic buyers or strategic participants in our space
have always thought, and many still probably do, they had thought for a long time that
the greatest way to grow is through organic growth, and they were always hesitant to pull
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on M&A as a growth driver.
The feeling was always from strategic buyers that why would I pay a premium for a business
that I could grow organically?
There was always concerns about integrating an acquisition into our culture.
How do we make that work?
I think that the increased activity from private equity firms in our space is showing that,
one, these businesses are worth the value that sellers demand, and then two, that that
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concern over integration is solvable with intentionality and with discipline, you can
solve that.
I think the third thing is, and we've mentioned this before, that organic growth is harder
today than I think it has ever been before.
You think about the three ways that a strategic buyer likes to grow their business.
They're going to grow it either geographically, well, growing geographically is difficult
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in a labor-tight environment.
They're going to grow it through new market segments.
I think that firms are becoming more and more specialized, and owners are demanding that
specialization, which means that it's harder and harder and harder to break into new market
segments where you don't have a resume and the owner's not willing to make a bet and
take that risk anymore.
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They're buying specialization.
The third way strategic buyers like to grow is obviously by adding new services, which
was always a lever from M&A.
I think if you think about that, what private equity has done is, one, they're going to
be a continued participant in our space.
They remain interested.
They remain an active participant in all of the processes that we run within our E&C
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M&A market.
But they're also creating a blueprint for strategic buyers to show them that in a world
where organic growth may be challenging, meaning organic growth above and beyond construction
put in place is just available to you, but in a world where that organic growth may be
challenging, there is a blueprint for using M&A as a driver for growth as a strategic
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lever to pull on.
Yeah, I see your point about organic growth getting more challenging.
If you just look back to 2020, which obviously was an anomaly year given COVID, but the
construction put in place has grown cumulatively 40% since then.
And so it's still projected to grow next year, but 2% next year versus 40% in total over
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the last few years.
It's going to feel like it's standing still.
So to your point, organic growth will continue to get harder and harder.
That forcing function of acquisition sometimes is needed if companies have big growth aspirations.
That's exactly right.
And I know that Jay's going to talk about his bulls and bears.
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There are markets that are going to grow above and beyond total construction put in place.
And so when we look at growth in the aggregate, you've really got to look at it segment by
segment.
And many of those segments where we're seeing outsized growth are areas where owners really
want to see specialization.
And if you want to grow into that space, you likely are going to need to acquire your way
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into it through a resume, right?
It becomes harder and harder for an owner to take risk in some of those markets.
Right, right.
Exactly.
Scott, another thing that's pretty interesting that we're seeing in the private equity space
is the increased use of what are called continuation vehicles as an avenue for exiting in the private
equity universe.
And so at a very high level, what a continuation vehicle is, is that a private equity firm
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traditionally buys a business with the intent to grow, add other businesses to it, expand
and then sell that business.
Well, one of the reasons why firms were always a little bit hesitant to invest heavily in
the E&C space because our market wasn't as advanced from an M&A standpoint 10, 15 years
ago was that they would have to rely on an exit.
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And the timing wasn't right.
Are they confident they would be able to get out of that business at the same value that
they had underroaded at?
Well, what continuation vehicles has allowed them to do is take good operating businesses
where they see the ability to continue to deploy capital, to continue to grow and expand
that business and create some liquidity for their investors while still owning the business.
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And what's interesting about that in our space in particular is that there are some really
large platforms that have been built in some of the segments we've talked about before.
So think about that in terms of architecture and engineering.
Think about that in terms of HVAC services or electric services or controls.
I mean, a lot of these markets where we have seen consolidation over the last 10 years
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and we've been waiting to figure out, okay, well, how are these firms going to exit it?
We can't have four firms all consolidating the same thing and have the same exit alternative.
Well, with more and more sophisticated or nuanced or just differentiated exit solutions,
it allows for this sustained consolidation to exist further than it would have in other
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markets and without these vehicles that exist.
And so we don't know yet how that's going to play out in our space, but we do believe
that that will allow for there to be continued acquisitions.
I mean, I mentioned before that 50 plus percent of the deals that we tracked in our space were
closed by private equity firm or private equity owned buyers.
That's going to continue as these firms have avenues to continue to deploy capitals under
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these platforms they've created.
Alex, this has been a great conversation.
I'd love to close with just some lessons learned and capitalizing on your years of experience
and working with buyers and sellers.
So if I were to ask you to put yourself in the shoes of a seller, what is the one thing
or what is the one question that a seller needs to really ask an answer for him or herself?
(29:42):
Is there contemplating their next steps?
The first thing that comes to mind, Scott, is mentioned before valuations remain strong
level of activity in our industry remains really high and robust, but buyers are demanding
more and more out of sellers to justify that valuation.
And so the one question that I always ask is, are you ready to sell?
(30:04):
Have you done what you need to do to prep your business accordingly to address the questions
and the diligence that a buyer is going to require to justify the valuation that you
rightly believe your business is worth and it is worth.
And so the level of sophistication from buyers has increased the level of activity that we're
(30:24):
seeing in the space, but it's also increased what they expect out of a seller when they
go to market.
And I think about that from financial reporting, not just, hey, do I have reviewed or audited
financial statements, but even more important than that.
Am I able to bifurcate my revenue?
Do I know where my revenue comes from?
How much of that is direct to owner versus subcontracted?
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How much of that is TNM versus fixed price?
What's under an MSA?
How much of my revenue comes from these high growth markets like data centers or mass manufacturing
versus some of the lower growth markets?
I mean, these are all the types of questions that a buyer is going to ask.
And one of the things that we always try to prep our clients for is to say, if you can
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think about the 20 questions that a buyer is going to ask and have them ready to answer
before they even ask them, it shows a level of efficiency and organization within your
business that justifies the valuation that you think you're worth.
And so the big question that I would always ask, we always ask our clients and that we
take the time to prep on the front end for and that if I were a seller, I'd be thinking
(31:25):
about is, have I done what I need to do to prep my business to succeed and what is becoming
a more and more sophisticated M&A marketplace?
Alex, you started to allude to it.
I appreciate that perspective from the seller, but how about from the buyer's perspective?
You know, Scott, from the buy side, I think it's almost the inverse, which is that the
(31:46):
diligence process and the valuation process has gotten much more sophisticated within
the ENC space.
And I think that what that then requires from buyers is focus, discipline, and then action
to take advantage of that focus and discipline.
And what I mean by that is, is, you know, I heard someone tell me one time that the hardest
part about setting a vision is actually knowing what you want, right?
(32:09):
But once you determine what you want, then go after that with enthusiasm and with efficiency.
The market has become more and more sophisticated from a diligent standpoint.
And there is the risk of, and I understand this sounds self-serving from someone who
sits on the sell side most of the time, but there is the risk of iterating on diligence
(32:31):
so much that we lose what we used to spend a lot of time within the ENC space focusing
on acquisitions, which is that personal connection, the focus on the future, the focus on how
to make this successful.
You know, I mean, I used to always say that the best deals that we ever did were the ones
where the buyer and seller spent more time in diligence thinking about what's the world
going to look like post closing than they thought about how do I get my diligence complete?
(32:55):
And so we certainly understand that diligence is an important part of transactions today
and that buyers really need to justify the value in which they're being asked to pay
for assets.
But I also would just encourage people to say, look, be focused, be disciplined, know
what you want.
And when you see it, go after it with enthusiasm, be organized in that approach, be ready to
(33:17):
address things and don't forget that there is a partner on the other side of this that
you want to make sure as an active and engaged participant within your business or within
their business driving it moving forward.
So I would say, you know, advice for the buyers is kind of the inverse, which is let's continue
to make sure that we're not losing the forest in the trees, that we can remain focused on
why am I making this acquisition?
(33:40):
How can I drive it towards the strategy that we're trying to implement?
You know, how can we move through diligence with pace and with efficiency so that we can
keep everybody motivated to go accomplish what's going to make this work five to 10
years down the road?
Alex, that was great.
Thank you so much.
I always really appreciate hearing your perspective on what you see shaping the environment and
(34:01):
where you think things are going to head in the upcoming months and years.
Again, just want to say thank you for being here.
Thanks for your time and look forward to doing this again in about 12 months.
Thanks, Scott.
I appreciate it.
I'm happy 2025 and I look forward to listening to the rest of the episodes this year.
Thank you for listening and please join me next for a conversation with Jay Bowman on
(34:22):
our 2025 market overview.
Jay is a senior partner in our strategy practice and the head of our market research function.
You can see Jay's fingerprints on many of our market overview and outlook publications
as well as on video each quarter for updates on where we see the construction market headed.
Today we'll be here to talk about our soon to be released 2025 overall market overview.
(34:44):
As always, please remember to like or subscribe to the podcast to make sure you don't miss
an episode.
Welcome to 2025 for the FMI Built-in Podcast.
(00:08):
I'm excited about what we have in store for this year and really excited about my conversation
with Alex Miller regarding our 2025 M&A overview.
Alex will touch on what we saw in 2024 across the broader M&A landscape and within the built
environment as well as what we think will likely play out in 2025.
Alex is a Managing Director with our FMI Capital Advisors Group and Co-lead of our Contractors
(00:30):
and Construction Services Group.
Alex welcome to the show, thanks for being here again.
Thanks Scott, I appreciate it.
Happy New Year's to you and happy New Year's to everybody listening to this.
Why don't we start off Alex if we could and just do a bit of a look back to look forward
as we're going to talk about our M&A outlook and what we think we'll see this year.
I'm curious from you and your team's perspective, what did 2024 look like and how did 2024
(00:54):
shape up from an M&A standpoint?
Yeah, so I think I read somewhere that 2024 is going to end up a lot like where it started,
which is with a lot of promise and opportunity, maybe not with the same level of results as
people were expecting.
I mean, overall, big picture not just within the E&C industry, but 2024 was an average
(01:15):
M&A year in the US heading into 24.
We were coming off of two years of declining activity.
The market seemed like it was really poised to bounce back and have a very strong year.
I think a lot of people going into the year felt like 2024 was going to see just a rip
of activity.
But I think the same headwinds that we face entering the year, which is economic uncertainty,
(01:37):
uncertainty over monetary policy, increased regulations, all of those things really remained
somewhat unresolved until later into the year.
To be fair, the market does itself a little bit of disservice when it talks about M&A,
because as we think about 2022 and 23, we're pegging that off of 21, which was really
just an outlier in terms of activity.
(01:59):
2021 saw more activity both in the E&C space and then more across all industries.
It just saw a record level of activity.
What we've seen over the last three years is really kind of steady, what some might
call disappointing, what I would call kind of average level of activity, but we do feel
like, especially as some of those headwinds kind of got resolved in the second half of
(02:22):
the year, that we're poised to really see a lot more activity coming out here early
in 2025.
So, Alex, I appreciate the broad perspective on the overall M&A landscape.
I'm curious what you observed last year with respect to just the E&C sector.
Yeah, so as I mentioned before, 2024 was a fairly average year across all industries,
(02:44):
but one of the honestly bright spots continues to be the E&C industry.
E&C activity, the latest we can track activity through is about November.
Through November, year over year, 24 compared to 23, E&C activity was up probably 13% in
total deal counts.
We are seeing more and more activity and most of that honestly is overwhelmingly and what
(03:07):
we would call kind of the middle and lower middle market, smaller to mid-sized firms
being acquired.
I mean, I can only think of a handful of deals that exceeded a billion dollars in total deal
value.
If you look at other industries that are really driven by these large mega deals that get
all the headlines, our industry continues to see a lot of consolidation, a lot of activity,
(03:29):
and most of it taking place within what we would consider to be kind of these middle
market transactions.
One of the things that we really think is driving this activity is just the level of,
I don't know if I'd call it sophistication, but I'd certainly call it just interest across
the industry from buyers in general.
I mean, about a decade ago, I started doing a survey for FMI where we would survey periodically
(03:55):
buyers in the E&C industry.
The thought at that time was that buyers really drove activity in our space compared to other
industries.
So, I think about other industries that traditionally have grown through acquisitions and were probably
ahead of our space in terms of using acquisitions as a lever for strategic growth.
What really drove activity was macroeconomic environment.
(04:19):
What really drives activity is the quality of the sell side or the sellers that are out
in the marketplace.
But for us in the E&C space, it was always, you know, how much buyer interest do we have?
Ten years ago, if we took out a really, really attractive engineering and construction asset
into the marketplace, we weren't guaranteed to get a lot of buyer interest out of that.
(04:40):
Today, we're more guaranteed for a really quality asset that we're going to get that
buyer interest.
And I think we see that because of two things, right?
One is, I know we're going to talk about this later, that there has been a significant increase
in private equity activity into the E&C industry.
And so that obviously creates just a whole nother universe of buyers that exist out there.
(05:02):
And then kind of piggybacking on that as strategic buyers saw what private equity firms were
doing, you know, they've become more sophisticated as well.
And they have certainly begun using M&A as a growth driver much more than they did probably
a decade ago.
So, like I said, 2024 was a great year.
Total activity was up across all spaces.
(05:24):
And we'll talk about what those are really driving and where some of that activity really
existed.
But one of the unique things that we're seeing is just buyers increasingly looking at M&A
as a driver for strategic growth within their business.
Kind of shifting focus now and moving forward as you look out over 2025 and the M&A landscape,
what are some of the themes that you think are going to drive deals in the coming year?
(05:48):
I think about this two ways, right?
We think about it in terms of themes and then the types of companies that are really generating
a lot of activity and a lot of interest today.
Look, we're going to continue to see activity and those large macro themes that we've been
talking about.
And I know this is somewhat a rehash of what we talked about last year.
(06:09):
But the fact is, is that the same things that are driving activity, they tend to sustain
driving activity for a while.
For example, we've talked about continuing this on-shoring and reshoring and manufacturing
capacity and advanced manufacturing being the big theme there.
The amount of advanced manufacturing capacity that we're putting in place or have put in
(06:29):
place over the last several years is creating renewed interest in the firms that design,
build and maintain those facilities.
Certainly the focus over the last year or two has been on putting new capacity into place
as that shifts.
We're going to start looking at activity for those that are really on the O&M side who
(06:50):
are living in and operating and focusing on keeping this manufacturing capacity running.
Another major theme that we've talked about a lot is the electrification and electric
infrastructure.
We put those two together.
But if you think about the amount of spend that is going to have to go into billions of
dollars that are being spent to upgrade, replace, expand outdated assets on the grid resiliency
(07:15):
side, and if you think about the amount of capacity that we're putting in place on the
data centers, I know Jay will be on here next month.
One of the themes I'm sure he will talk about is the amount of construction put in place
going into data centers specifically.
You think about all the opportunities that come from that, the service, the design.
(07:35):
One of the things that I want to talk about a little bit later is the amount of capacity
that we are starting to build in a modular or prefabricated setting and what is that
doing to the M&A environment as well.
Another theme that we've talked about before that is very similar to this is the energy
transition theme.
Obviously, there are questions I think in that market, but we are, as we look to, what
(07:57):
will a new presidential regime feel like in that marketplace?
But we are seeing a multi-decade transition as it relates to energy transition.
We're going to see continued consolidation of traditional energy sources.
I think the downstream and traditional energy environment was actually a good M&A year last
(08:18):
year as we see just consolidation within that matured market.
Then we're seeing, again, a ton of activity in and around the emerging market as it relates
to the energy transition.
I think that's another area that we'll see maybe a different shift of activity, but continued
sustained activity.
Then the other theme that we always point to is this aging infrastructure.
(08:39):
Water, roads, bridges, dredging.
These are all examples of areas where we have seen a lot of M&A activity.
We know that there is a lot of spend and it's an area where I think we'll continue to see
more and more deal flow in 2025.
I know I've talked about this before, Scott, but one of the things that we just like to
(08:59):
point to is what is driving this M&A activity within the E&C space?
One of it very much is that sophisticated capital is looking to figure out how do we
invest in these themes?
How do I invest in aging infrastructure, which we know is an issue and we actually have federal
and state budgets that are now prepared to deal with that issue?
(09:22):
How do I invest in electrification and an aging grid and an aging power delivery system?
How do I invest in onshore and reshoring?
Increasingly, firms are looking to the E&C market as a way to invest in those themes
and to back the companies that are going to be part of the solution to solve these problems
(09:44):
over the next several decades.
Those are probably the big themes.
Then when we think about it specifically in terms of what types of companies are we seeing?
The types of companies that are getting a lot of interest today are, I would say, obviously
those that deal within those themes, but then specifically the architecture and engineering
(10:05):
space has seen just a tremendous amount of activity recently.
Certainly, if there are firms that are touching on environmental or aging infrastructure or
energy transition.
There's a premium paid there and there's a more interest that exists because we get
two for one.
We get the type of company that's drawing the interest as well as the theme that people
(10:28):
want to invest behind.
Within that AEE space, we are still seeing a ton of activity even if you're not touching
that.
If you're just in a traditional vertical construction space, there is still a lot of activity that
exists out there.
It's an area where there are dozens of private equity platforms that are looking to consolidate.
(10:50):
What firms really point to and where buyers are really attracted to on the AEE space is
even if you're not touching one of these, I would say, mega or macro trends that we
keep talking about, as long as you are tied to an industry where there is sustainable long
term spending trends.
Think about that in terms of higher ed or healthcare or other education oriented building
(11:13):
buildings.
That still generates a lot of interest because it's the business model that people want to
invest behind and it's in an area where they can see a multi decade spend that will take
place.
Within the construction side, the two areas where I point to that we saw a lot of activity
last year and these are just interesting tidbits, but within the mechanical, electrical, and
(11:37):
plumbing trades, we continue to still see a lot of activity.
In our contractor and construction services group, we track all transactions that take
place throughout the year.
Nearly 30% of the contractor and construction services deals that we tracked were MEP last
year.
It is an area that continues to see a lot of interest all the way from traditional project
(12:00):
based mechanical and electricals to those that are more on the service side.
Then obviously those that are touching some of those themes we talked about before in terms
of electrification and advanced manufacturing and other areas.
Then I'd say the third thing I'd point to where we just saw a lot of activity and expect
it will seem more is in the roofing space.
I told you 30% of all contractor deals that we tracked last year were MEP, well 10% of
(12:25):
them were roofing.
It is an area that private equity has invested behind heavily because they see this inability
to defer spend too long in that space.
The re-roofing market creates a pretty unique opportunity for a reoccurring revenue base.
We're seeing that theme now play out across the entirety of what I would call that exterior
(12:48):
building solution.
Waterproofing and sealants and concrete and masonry restoration are all services that
when you own a expensive asset like a building and we see increasing weather events, we see
increasing regulation about a desire to not lose a lot of energy that is taking place
(13:09):
within the building.
It's increasing the spend that takes place on that building envelope.
We're seeing a lot more activity in and around what I would call exterior building solutions
as well as another type of company where there's a lot of interest and activity.
Alex, I appreciate the perspective on themes and then some of the sectors within those
themes.
(13:29):
Are there any that we haven't talked about that you think you really see shaping this
year's M&A activity?
Yeah.
I mean, I think there's a few more that we can point to.
And again, we're cherry picking a couple of things that we're seeing here.
I'll point to two other themes that we're seeing.
First I would say that we have had a relatively quiet period of time in terms of international
(13:52):
interest in the E&C market in the US.
I think the firms that wanted to get here were here and some of those were dealing with
the assets that they had owned and we're working through some of that.
And over the last probably six months, we have seen significantly increased interest
from international firms similar to what we saw probably 10, 15 years ago across the
(14:15):
world who are looking at the United States as an open market with pretty strong growth
trajectory across a number of different sectors that can be in the both civil, the building
and the industrial side of our market.
And so we are seeing more international interest than we have over the last few years.
The last theme that I want to talk about and maybe just touch on here is, and this is one
(14:39):
of those themes that I think we have at FMI talked about ever since I joined many years
ago, which is just this continued kind of integration and shifting benefits and models
within the E&C supply chain.
One of the areas that I really do want to talk about where I think that we're going
to see more and more and more M&A activity is in and around kind of the vertical integration
(15:01):
within the actual construction of especially industrial facilities.
And I know that our consulting side has talked a lot about the increased use of prefabrication
and modular solutions to augment both shortages in the labor side of our market, but then
also to enhance speed and certainty for the owner, we are increasingly seeing firms look
(15:27):
to acquisitions and M&A as a way to either acquire or augment or expand their existing
offsite capabilities.
And I think this one's going to have pretty interesting implications for the construction
market specifically.
So what I think has driven this in large part is we talked before about the amount of data
(15:48):
centers and advanced manufacturing and those being really probably two of the shining stars
over the last two years of construction put in place.
And I know Jay will talk about that next month.
Well, when you think about advanced manufacturing and data centers, what are the things that
the owners are demanding of their general contractors and their trade contractors?
(16:08):
They're demanding speed and certainty of execution.
It's the old, you can have price, you can have speed, and you can have quality, you
can have two of the three, you can't have all three.
Well, in those markets, those owners are saying we demand speed and we demand quality.
And so what we are seeing is in large part general contractors who are looking to figure
(16:30):
out, okay, well, if the owner wants to build an immodular solution, we need to be able
to acquire this capability.
Well, if you think about that, who has been leading in our industry for the last many,
many years on offsite?
What's been the trade contractors?
This is self-performing trades that built prefabrication capabilities.
(16:50):
That is now being shifted into, hopefully, modular capabilities that can then accelerate
schedule, guarantee a higher level of certainty, certainly augment what is a continued labor
shortage within our industry.
And so what I think we're going to see is we're going to see more vertical integration
within that, right?
There are large general contractors that exist out there today that are looking to augment
(17:13):
or acquire modular offsite capabilities and will likely have to look at acquiring some
self-performing capabilities to figure out how to do that as those go hand in hand.
And so I think that the integration of design and construction will continue to increase,
the integration of general contractors with self-performing or offsite capabilities will
(17:33):
continue to increase.
And I think that the ability to do that organically firms have found out is really challenging.
If we think that the world is going to move into this more kind of integrated or especially
in some of these advanced markets and more integrated delivery, I think we're going to
see M&A and acquisitions as the conduit to really acquire that capability.
(17:57):
Thanks, Alex.
Just to illustrate some of these examples, are there recent transactions that you would
point to that are reflective of what you just shared?
I think early last year we represented Obayashi and their acquisition of MWH.
That's a really interesting transaction that touches on a couple of themes that we mentioned
(18:18):
above.
The first is, is that obviously Obayashi is a large Japanese E&C firm.
So it, as I mentioned before, there's increased international interest in the U.S. market.
MWH is the largest design build firm focused on water infrastructure in the United States.
And so if you think through that, well, where is one of the areas where we see the most
(18:40):
spend and especially to address in the aging infrastructure, it's in the water space and
the treatment, but then also in water and the delivery and in the transmission and distribution
on the water side.
And then the third theme that that touches on that I know we're going to talk about in
a little bit here is continued sustained interest from private equity firms, right?
MWH was owned by a private equity firm.
(19:01):
This was the construction side of the legacy MWH engineering business that had been owned
by private equity.
And Obayashi acquired that business to continue to expand and grow within their water construction
exposure.
Another really large deal that was announced last year was Qantas acquisition of Cupertino.
(19:23):
Very, very interesting transaction and really touches on the electrification theme that
we talked about touches on the data center theme.
I mean, this was clearly Qantas desire to move into and to expand their capabilities
in the data center world.
So really interesting trend there.
And then also obviously clearly, I mentioned before that 30% of all construction deals
(19:44):
tended to be in that mechanical electrical plumbing trade.
Obviously one of the larger electrical services providers that existed in the United States.
So Alex, I appreciate the perspective on some recent transactions and what you're seeing.
I know you love getting this question because it's almost unanswerable, but with respect
to valuation, what are you seeing right now with respect to buyers and sellers and how
(20:06):
they're approaching this market?
You're right, Scott.
It is almost an unanswerable question.
And it's honestly, it's a difficult question because if you think about the E&C industry,
there is just a wide variety of types of companies that exist, right?
And the value for any of those companies can just be very, very different.
And we can talk about what drives value in our industry in terms of the segmentation
(20:29):
of revenue, recurring versus project based or fixed price versus T&M.
But to answer your question, one of the things that I didn't mention when we did that 24
recap and talked about the activity that we saw in 2024 is that activity is certainly
down a little bit from that 2021 peak level.
(20:49):
However, value is held pretty close to where it was at that peak level.
I mean, firms are still generating very strong value.
It has come, obviously, the level of interest and buyer appetite that we have in our space
is a big conduit, a big driver of that valuation.
So we're seeing valuation that is holding and is still very, very strong to the levels
that we saw a couple of years ago.
(21:11):
What has changed is, I think, the risk appetite from buyers.
So buyers recognize that they're not able to get a discount today.
They're going to have to pay a full valuation.
They're going to have to value the business in the same way they would have three years
ago.
What has shifted is, is that their willingness to depart with that capital is becoming increasingly
(21:32):
harder, meaning that, you know, I joke that in 2021, buyer would have closed the transaction
with 10 questions.
Today, they're going to ask 100.
If they would have asked 100 today, they might ask 1,000, right?
I mean, we are seriously seeing buyers that are moving much more diligently and much slower
through diligence periods.
I think we saw that across.
(21:53):
I mean, if you read any M&A, you'll see that across all sectors, but in our space in particular,
buyers remain very interested, very focused, values are holding.
But I think that we're starting to see, at least in 24, a level of risk that's not being
priced into value, but is being kind of played out in the diligence that buyers are undertaking
(22:15):
to justify that value.
Now hopefully in 2025, we start seeing that with increased activity, with increased focus,
with renewed strategies, that maybe we can move a little bit more efficiently through
these transaction processes.
But certainly, I would say value has not come down, but buyers are going to have to work
a little bit harder to justify that in today's current environment.
(22:37):
Thanks, Alex.
You've referenced private equity a couple of times.
Sharius, what role do you see financial sponsors playing in the market in 2025?
I think there's a straight way to answer that, and then maybe a more nuanced way to answer
that.
The straight way to answer that is that private equity firms are now a participant in the
engineering and construction M&A marketplace, and there's no going back.
(23:01):
We talked before, they are looking to our industry as a way to invest in some of these
macro themes that our industry is going to be a large part in solving and addressing.
In the construction space in particular, I mentioned before that our team tracks all
contractor and construction services deals that take place in the United States.
Nearly 50% of those deals tracked were acquired by a private equity firm or a private equity
(23:26):
owned firm.
It is a major player within the construction space.
I think if you look at the A&E business, it would actually probably be larger.
I would suspect that that percentage is actually higher on the A&E side.
The private equity is going to continue to be a participant in our industry.
The other thing that private equity is doing, as I mentioned before, is that I think that
(23:48):
it is opening the eyes of strategic buyers.
I think that our space in particular, strategic buyers or strategic participants in our space
have always thought, and many still probably do, they had thought for a long time that
the greatest way to grow is through organic growth, and they were always hesitant to pull
(24:11):
on M&A as a growth driver.
The feeling was always from strategic buyers that why would I pay a premium for a business
that I could grow organically?
There was always concerns about integrating an acquisition into our culture.
How do we make that work?
I think that the increased activity from private equity firms in our space is showing that,
one, these businesses are worth the value that sellers demand, and then two, that that
(24:34):
concern over integration is solvable with intentionality and with discipline, you can
solve that.
I think the third thing is, and we've mentioned this before, that organic growth is harder
today than I think it has ever been before.
You think about the three ways that a strategic buyer likes to grow their business.
They're going to grow it either geographically, well, growing geographically is difficult
(24:57):
in a labor-tight environment.
They're going to grow it through new market segments.
I think that firms are becoming more and more specialized, and owners are demanding that
specialization, which means that it's harder and harder and harder to break into new market
segments where you don't have a resume and the owner's not willing to make a bet and
take that risk anymore.
(25:17):
They're buying specialization.
The third way strategic buyers like to grow is obviously by adding new services, which
was always a lever from M&A.
I think if you think about that, what private equity has done is, one, they're going to
be a continued participant in our space.
They remain interested.
They remain an active participant in all of the processes that we run within our E&C
(25:39):
M&A market.
But they're also creating a blueprint for strategic buyers to show them that in a world
where organic growth may be challenging, meaning organic growth above and beyond construction
put in place is just available to you, but in a world where that organic growth may be
challenging, there is a blueprint for using M&A as a driver for growth as a strategic
(26:02):
lever to pull on.
Yeah, I see your point about organic growth getting more challenging.
If you just look back to 2020, which obviously was an anomaly year given COVID, but the
construction put in place has grown cumulatively 40% since then.
And so it's still projected to grow next year, but 2% next year versus 40% in total over
(26:23):
the last few years.
It's going to feel like it's standing still.
So to your point, organic growth will continue to get harder and harder.
That forcing function of acquisition sometimes is needed if companies have big growth aspirations.
That's exactly right.
And I know that Jay's going to talk about his bulls and bears.
(26:44):
There are markets that are going to grow above and beyond total construction put in place.
And so when we look at growth in the aggregate, you've really got to look at it segment by
segment.
And many of those segments where we're seeing outsized growth are areas where owners really
want to see specialization.
And if you want to grow into that space, you likely are going to need to acquire your way
(27:05):
into it through a resume, right?
It becomes harder and harder for an owner to take risk in some of those markets.
Right, right.
Exactly.
Scott, another thing that's pretty interesting that we're seeing in the private equity space
is the increased use of what are called continuation vehicles as an avenue for exiting in the private
equity universe.
And so at a very high level, what a continuation vehicle is, is that a private equity firm
(27:28):
traditionally buys a business with the intent to grow, add other businesses to it, expand
and then sell that business.
Well, one of the reasons why firms were always a little bit hesitant to invest heavily in
the E&C space because our market wasn't as advanced from an M&A standpoint 10, 15 years
ago was that they would have to rely on an exit.
(27:50):
And the timing wasn't right.
Are they confident they would be able to get out of that business at the same value that
they had underroaded at?
Well, what continuation vehicles has allowed them to do is take good operating businesses
where they see the ability to continue to deploy capital, to continue to grow and expand
that business and create some liquidity for their investors while still owning the business.
(28:10):
And what's interesting about that in our space in particular is that there are some really
large platforms that have been built in some of the segments we've talked about before.
So think about that in terms of architecture and engineering.
Think about that in terms of HVAC services or electric services or controls.
I mean, a lot of these markets where we have seen consolidation over the last 10 years
(28:34):
and we've been waiting to figure out, okay, well, how are these firms going to exit it?
We can't have four firms all consolidating the same thing and have the same exit alternative.
Well, with more and more sophisticated or nuanced or just differentiated exit solutions,
it allows for this sustained consolidation to exist further than it would have in other
(28:56):
markets and without these vehicles that exist.
And so we don't know yet how that's going to play out in our space, but we do believe
that that will allow for there to be continued acquisitions.
I mean, I mentioned before that 50 plus percent of the deals that we tracked in our space were
closed by private equity firm or private equity owned buyers.
That's going to continue as these firms have avenues to continue to deploy capitals under
(29:18):
these platforms they've created.
Alex, this has been a great conversation.
I'd love to close with just some lessons learned and capitalizing on your years of experience
and working with buyers and sellers.
So if I were to ask you to put yourself in the shoes of a seller, what is the one thing
or what is the one question that a seller needs to really ask an answer for him or herself?
(29:42):
Is there contemplating their next steps?
The first thing that comes to mind, Scott, is mentioned before valuations remain strong
level of activity in our industry remains really high and robust, but buyers are demanding
more and more out of sellers to justify that valuation.
And so the one question that I always ask is, are you ready to sell?
(30:04):
Have you done what you need to do to prep your business accordingly to address the questions
and the diligence that a buyer is going to require to justify the valuation that you
rightly believe your business is worth and it is worth.
And so the level of sophistication from buyers has increased the level of activity that we're
(30:24):
seeing in the space, but it's also increased what they expect out of a seller when they
go to market.
And I think about that from financial reporting, not just, hey, do I have reviewed or audited
financial statements, but even more important than that.
Am I able to bifurcate my revenue?
Do I know where my revenue comes from?
How much of that is direct to owner versus subcontracted?
(30:45):
How much of that is TNM versus fixed price?
What's under an MSA?
How much of my revenue comes from these high growth markets like data centers or mass manufacturing
versus some of the lower growth markets?
I mean, these are all the types of questions that a buyer is going to ask.
And one of the things that we always try to prep our clients for is to say, if you can
(31:05):
think about the 20 questions that a buyer is going to ask and have them ready to answer
before they even ask them, it shows a level of efficiency and organization within your
business that justifies the valuation that you think you're worth.
And so the big question that I would always ask, we always ask our clients and that we
take the time to prep on the front end for and that if I were a seller, I'd be thinking
(31:25):
about is, have I done what I need to do to prep my business to succeed and what is becoming
a more and more sophisticated M&A marketplace?
Alex, you started to allude to it.
I appreciate that perspective from the seller, but how about from the buyer's perspective?
You know, Scott, from the buy side, I think it's almost the inverse, which is that the
(31:46):
diligence process and the valuation process has gotten much more sophisticated within
the ENC space.
And I think that what that then requires from buyers is focus, discipline, and then action
to take advantage of that focus and discipline.
And what I mean by that is, is, you know, I heard someone tell me one time that the hardest
part about setting a vision is actually knowing what you want, right?
(32:09):
But once you determine what you want, then go after that with enthusiasm and with efficiency.
The market has become more and more sophisticated from a diligent standpoint.
And there is the risk of, and I understand this sounds self-serving from someone who
sits on the sell side most of the time, but there is the risk of iterating on diligence
(32:31):
so much that we lose what we used to spend a lot of time within the ENC space focusing
on acquisitions, which is that personal connection, the focus on the future, the focus on how
to make this successful.
You know, I mean, I used to always say that the best deals that we ever did were the ones
where the buyer and seller spent more time in diligence thinking about what's the world
going to look like post closing than they thought about how do I get my diligence complete?
(32:55):
And so we certainly understand that diligence is an important part of transactions today
and that buyers really need to justify the value in which they're being asked to pay
for assets.
But I also would just encourage people to say, look, be focused, be disciplined, know
what you want.
And when you see it, go after it with enthusiasm, be organized in that approach, be ready to
(33:17):
address things and don't forget that there is a partner on the other side of this that
you want to make sure as an active and engaged participant within your business or within
their business driving it moving forward.
So I would say, you know, advice for the buyers is kind of the inverse, which is let's continue
to make sure that we're not losing the forest in the trees, that we can remain focused on
why am I making this acquisition?
(33:40):
How can I drive it towards the strategy that we're trying to implement?
You know, how can we move through diligence with pace and with efficiency so that we can
keep everybody motivated to go accomplish what's going to make this work five to 10
years down the road?
Alex, that was great.
Thank you so much.
I always really appreciate hearing your perspective on what you see shaping the environment and
(34:01):
where you think things are going to head in the upcoming months and years.
Again, just want to say thank you for being here.
Thanks for your time and look forward to doing this again in about 12 months.
Thanks, Scott.
I appreciate it.
I'm happy 2025 and I look forward to listening to the rest of the episodes this year.
Thank you for listening and please join me next for a conversation with Jay Bowman on
(34:22):
our 2025 market overview.
Jay is a senior partner in our strategy practice and the head of our market research function.
You can see Jay's fingerprints on many of our market overview and outlook publications
as well as on video each quarter for updates on where we see the construction market headed.
Today we'll be here to talk about our soon to be released 2025 overall market overview.
(34:44):
As always, please remember to like or subscribe to the podcast to make sure you don't miss
an episode.
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