Article - April 13, 2023
Engineering: Powerful Trends Driving Continued Momentum
Learn more about the Harris Williams senior professionals featured in this article.
Key Learnings
Well-established trends within the engineering sector are bolstering investor participation in the space.
As these trends persist, investors will continue to look for creative opportunities to deploy capital into the sector, which will help sustain its strong pace of M&A activity.
Recent Harris Williams engineering services engagements underscore strong buyer interest across the space and highlight some of its compelling value-creation opportunities.
In recent years, the fragmented and recession-resilient engineering sector has experienced accelerating investor interest, particularly among the private equity community. Powerful tailwinds, such as the infrastructure bill rollout, ongoing energy transition, and expansion of 5G, are propelling private equity participation and a valuation uplift across the sector.
Here, our senior professionals share the key trends driving burgeoning investor appeal throughout engineering services, and recent Harris Williams transactions exemplifying sought-after company characteristics.
Market Trends Underpinning Sector Growth
Multiple attractive tailwinds continue to propel the engineering sector, leading to a sharp increase in investor interest in recent years.
For a deep dive into these and other trends, as well as a detailed look at the sector's M&A landscape, download our latest Engineering Services Market Report.
The State of U.S. Infrastructure
Across the U.S., bridges, roads, water plants, and other key components of the country’s infrastructure need repair, replacement, and upgrading. The regular upkeep of these essential assets is driving non-discretionary and long-term demand for engineering companies that specialize in their maintenance.
Tied to the state of U.S. infrastructure is the rollout of the infrastructure bill, which is creating more jobs for businesses that plan, design, and work on upgraded infrastructure. “As private equity firms consider ways to deploy capital in the current market, America’s massive infrastructure bill provides investors with greater confidence in engineering assets,” says Spitzer. “The bill’s funding, coupled with the Inflation Reduction Act, means a long runway for elevated spending and sustainable demand throughout the sector going forward,” he continues.
Energy Transition & ESG
The energy transition is another major trend generating investor activity in the engineering services sector. “As innovative infrastructure is built around new and more efficient energy sources, it will require connectivity and a fundamental shift in how it operates,” notes White. He explains that this includes putting renewables online that must be connected to the existing power grid, hardening and redesigning existing power grids, and implementing electric vehicle charging station infrastructure to support increasing EV adoption.
Meanwhile, a rising focus on ESG and sustainability is creating an expanding set of opportunities for engineering businesses. For example, companies focused on the efficiency of buildings are redesigning floor plans for cost-effective lighting, automated light switches, and other key components of economical energy output.
“With private equity groups targeting more ESG-aligned investment opportunities, engineering companies with an established dedication to sustainability can gain visibility in the marketplace and drive premium valuations,” points out Lewis.
Telecom & 5G
In addition, the 5G rollout within telecom is a compelling theme across engineering services with high-speed broadband and internet access becoming increasingly crucial for both business and residential use. “To meet rising wireless needs, the expansion of 5G has accelerated to offer greater speed, capacity, and reliability,” says Waller.
Establishing these highly desirable 5G capabilities entails building telecom infrastructure in the form of towers and underground fiber installation. “In turn, that’s bolstering demand for companies specializing in these sought-after services,” he adds.
Market Consolidation
These trends, as well as high fragmentation throughout engineering services, are leading to rapid consolidation in the sector as operators seek to round out their service mix and expand their geographic footprints to enhance their competitive positioning.
At the same time, the sector’s favorable long-term growth outlook is driving an uptick in private equity-backed transaction volumes across all pockets of the market. “The fragmented landscape provides a substantial opportunity to enter or expand within the sector, and we expect M&A activity to remain strong in the coming years,” says Spitzer.
Four Engineering Exemplars
A variety of recent Harris Williams client engagements in the engineering sector highlight the rising level of buyer interest across the space.
Apex Companies (Apex) is a consulting and engineering firm with a robust portfolio of capabilities in water, environmental, infrastructure, health & safety, compliance & assurance, construction management, and transportation.
Apex has established market leadership in the attractive stormwater consulting segment, with a broad mix of other complementary environmental and infrastructure solutions focused on achieving and maintaining regulatory compliance.
“This prioritization on regulatory-driven environmental solutions, environmental, health, and safety consulting, and water and wastewater advisory underpins the company’s strong ESG story,” explains Waller. In addition, Apex is positioned to capitalize on longer-term infrastructure spending trends around the water and wastewater ecosystem and more broadly across civil infrastructure networks.
Ardurra provides complex and innovative engineering and design services for various end-markets across the U.S., including water, transportation, and aviation. These services are focused on critical components of infrastructure across local communities, enabling them to provide residents clean water, implement transit and transportation solutions, treat wastewater, and develop sustainable infrastructure solutions.
“With specialized capabilities around water and wastewater infrastructure, Ardurra is uniquely positioned to benefit from the long-term spending trends associated with facility upgrades, coastal resiliency, resource optimization, and other ongoing initiatives,” notes Spitzer. “Beyond the water sector, Ardurra has strategically built highly specialized transportation capabilities, providing it with other avenues to support the upgrade of essential civil infrastructure throughout the country,” he says.
ENERCON is an engineering and environmental services firm that delivers safe, efficient solutions for the power and industrial sectors. The company’s engineering expertise covers a range of disciplines, including electrical, instrumentation and control, mechanical, civil structural, chemical, environmental, and special licensing.
With a historical focus on the nuclear market, ENERCON has strategically expanded its service capabilities into highly complementary power delivery and environmental segments. “As one of the few independent providers of scale in the broader power delivery segment, ENERCON is well positioned to capitalize on the sector’s ongoing energy transition, grid hardening, decarbonization, and energy efficiency tailwinds,” says Waller.
Tower Engineering Professionals is a telecom engineering firm providing construction and engineering services throughout North America.
With major carriers continuing to transition to 5G infrastructure and unveil 5G solutions, more cell sites and cell site upgrades will be needed to deliver those 5G capabilities. “This requires a massive, multiyear digital infrastructure investment that's still in its early stages, creating strong demand for specialized service providers like Tower Engineering,” explains White.
As telecom infrastructure and 5G connectivity become more vital, Tower Engineering is poised to take advantage of the sector’s tailwinds and capture long-term demand in the space.
Rising Pace and Scale of M&A
As evidenced by recent Harris Williams transactions within engineering services, powerful trends continue to drive interest for differentiated businesses. Both private equity investors and existing businesses in the sector are looking to capitalize on engineering’s long-term growth potential, and prioritizing businesses with compelling ways to deliver value to their clients or build scale through accretive M&A. As these trends continue, the pace and scale of M&A across the sector should both increase, leading to significant value-creation opportunities.
To discuss M&A opportunities across the engineering sector, please contact our senior bankers.
Select Activity
Contacts
Drew Spitzer
Managing Director
Energy, Power & Infrastructure
Matt White
Managing Director
Energy, Power & Infrastructure
Greg Waller
Managing Director
Energy, Power & Infrastructure
Derek Lewis
Managing Director
Business Services
