M&A activity in the engineering and construction sector continued to lag prior years on an overall deal value and volume basis, according to PwC’s Q1 M&A analysis for engineering and construction companies.
Coming off a relatively robust Q4 2018, deal volume and values decreased to their lowest quarterly level in the last three years. While Q1 tends to be a laggard on the overall year, Q1 2019 value of $15.6 billion was down 30% versus Q1 2018; on a volume basis, Q1 2019 decreased 25% versus Q1 2018. During Q1 2019 there was only one deal with a value above $1 billion. Global economic uncertainty combined with ongoing geopolitical influences continue to put a drag on M&A in the sector.
“Q1 2019 M&A activity was off significantly from the same period in 2018,” said Colin McIntyre, PwC US Engineering and Construction Deals Leader. “Economic uncertainty combined with ongoing trade disputes and related geopolitical tensions outweighed underlying solid sector fundamentals.”
While there was some positive movement on certain aspects of the ongoing trade disputes, there was no clarity on the resolution. Going into Q2, resolution of trade disputes and some favorable economic data could help drive increased M&A activity.
Trends and highlights
- Deal value in Q1 2019 was $15.6 billion, a significant decline of 52% over Q4 2018. The deal value in Q1 2019, also declined by 29% over Q1 2018. Deal volume in Q1 2019 was 510, a decline of 19% over Q4 2018. Deal volume in Q1 2019 also declined by 25% over Q1 2018.
- Average deal size in Q1 2019 was $90.9 million, a decrease of 30% compared to Q4 2018. The average deal size also declined slightly by 8% in Q1 2019 vis-à-vis Q1 2018.
- Asia and Oceania was the most active acquirer in the global engineering and construction sector. In Q1 2019, the region made up for 65% of deal value. This was driven by the acquisition of Beijing Easyhome Home New Retailing Chain Group Co. Ltd. by Wuhan Zhongnan Commercial Group Co. Ltd. for $5.9 billion.
Q1 2019 was a low mark in M&A value and transaction volumes in the last three years. Sector M&A activity continues to be dragged by economic uncertainty, ongoing trade friction, and associated geopolitical tension, all of which cloud otherwise good underlying fundamentals (e.g., replacement of aging infrastructure, population growth fueling demand for housing and infrastructure). Coming out of Q1 there were some positive signs including progress on a China-Unites States trade resolution which may help ease the underlying tension, stable market outlook and ongoing discussions of an infrastructure bill in the United States. Further progress on all these fronts will have a positive impact and help drive a recovery of M&A activity towards more recent historical levels in Q2 2019 and beyond.
