Ongoing Consolidation in the Consulting & Engineering Sector
Consolidation and diversification have been the dominant themes in the consulting & engineering sector for the past several years. Almost all firms have found themselves in either the role of buyer or seller, and sometimes both at the same time. Many of the largest C&E firms have gotten where they are today by means of aggressive acquisition programs. URS Corporation, after teetering close to economic collapse a decade and a half ago, is one of the industry's largest players today, after acquiring Greiner, Dames & Moore and Woodward-Clyde. The IT Group is another major consolidator, having acquired more than a dozen companies over the past six years, most notably OHM and Emcon. Tetra Tech and Earth Tech have both been consistently successful consolidators at a somewhat smaller scale, and more recently Mactec has emerged as a player-acquiring Environmental Science & Engineering, and Harding Lawson Associates. And there is no floor to this activity-regional and even small local players are also growing through acquisitions and mergers. Hardly a week goes by without the announcement of a merger at the smaller, local level.
In addition, several foreign buyers have also recently shown an interest in acquiring capacity in the U.S. business. England's AMEC recently acquired Agra-Canada's largest environmental and infrastructure engineering firm-and British engineering firms and water companies have been buying up stakes in the U.S. engineering (though not totally environmental) business. For example, PA Consulting Group acquired Hagler Bailly earlier this summer, and the WSP Group of the U.K. recently acquired several smallish U.S. engineering firms. Skanska AB, the Swedish giant, recently paid $60 million for Baugh Enterprises, a construction management firm in the northwest, and top German engineering and construction firm Hochtief AG gobbled up Turner Construction last year. Asian firms are also beginning to dabble in the business.
What is behind this increasing urge to merge? Most deals are driven by one of two major considerations: the ability to buy revenue, profits and customers at a price below what it might cost to develop them from scratch, and/or an attempt to quickly and more cheaply diversify into an end market or geographic region which is deemed to be strategically desirable. The former is certainly the key motivation behind many of the bigger stateside consolidators, while foreign players looking for an expansion platform or U.S. companies seeking strategic diversification are characterized by the latter. Most of current initiatives in the consulting industry revolve around the urgency of building expertise in water/wastewater infrastructure and transportation-two historical of most major engineering firms.
There are many companies 'on the market' in the C&E business today, and the opportunity to grow in quantum leaps via acquisition is still there for financially qualified firms. However, successful acquirers need to remember that it is one thing to identify strategically desirable targets and cut reasonably-priced deals with them. It is quite another thing to successfully integrate the operations and cultures of multiple firms-and to truly make several firms merge into a smoothly operating single entity. Many firms have demonstrated the capability to identify and consummate deals, but few have been able to successfully accomplish long-term profitability on a consistent basis. A consistently successful integration and implementation record is the real hallmark of a prosperous acquirer-something that remains notably rare in the environmental engineering industry.