Momentum for Engineering and Construction M&A Continues in Q2

OVERVIEW

We are pleased to present BaseRock Partners’ Q3 2021 Engineering and Construction M&A Outlook. This quarter we note the rare confluence of economic, political, and social factors that have come together in 2021 to spark both exceptional growth and a continued surge of E&C M&A activity.

KEY TAKEAWAYS

M&A Activity. M&A in the United States continues at record pace. The number of M&A transactions in Q1 2021 are up 8.8% compared to Q1 2020 and are up 3.2% compared to Q1 2019. We expect this momentum to continue for the balance of 2021 and into 2022 as the U.S. economy continues to recover from the COVID-19 recession. 

Interest Rates. In our view, the greatest risk to the construction market is a meaningful increase in the 30-year mortgage rate, which has not exceeded 6.0% in well over a decade.  With the Case-Shiller 20-city composite index having increased by nearly 15 percent over the past year, even a small increase in 30-year rates is likely to have a profound effect on mortgage affordability. 

Inflation. Input costs for the construction industry are of increasing concern, with select segments of the construction supply chain growing at double – if not triple – digit rates in the past 12 months. The Federal Reserve is suggesting inflation is “transitory”, i.e., it will cool off as the economy rebounds and the supply chain recovers.  However, the market has not seen meaningful inflation since the early 1980’s, and continued pricing growth poses risks to the continued expansion of E&C markets.

Infrastructure Legislation. The House of Representative approved infrastructure legislation on July 2nd and the Senate is expected to consider legislation the week of July 19th. The promise of a meaningful infrastructure bill has driven the stock prices of many E&C firms to all-time highs and has made acquisitions increasingly attractive.

Download BRP Q3 2021 E&C M&A OUTLOOK