Executive Corner: Inside ROG’s Latest A/E Business Valuation and M&A Transactions Study

Executive Corner: Inside ROG’s Latest A/E Business Valuation and M&A Transactions Study

In 2023, uncertainty defined the year for many firms in the A/E industry. While some firms experienced robust revenue growth, others expressed skepticism about the future due to declining backlogs toward the end of the year, particularly in the architecture sector. In addition, four interest-rate hikes within the first eight months of the year and tighter capital directly impacted the cost and availability of capital to fund new projects.

However, despite the increase in the cost of capital and uncertainty in some sectors of the economy, valuation multiples have remained steady, according to the recently released “A/E Business Valuation and M&A Transactions Study.”

Multiple Results

The study, now in its 11th edition, included 257 transactions, including internal minority-interest ownership transactions and controlling-interest merger and acquisition (M&A) transactions. The tables below illustrate the enterprise values of the surveyed and publicly traded firms as a multiple of earnings before interest and taxes, depreciation, and amortization (EBITDA).

Most firms entered 2023 with positive outlooks, robust backlogs and strong demand for services. But many of those same firms saw a decline in backlog levels during the year and had good reason to be concerned about the outlook for private-sector markets. Despite this, firms serving private-sector clients saw little to no decrease in work, highlighting the resiliency of private markets despite rising interest rates. And as illustrated above, minority-interest multiples for privately held firms actually increased slightly in 2023.

Controlling-interest multiples for M&As remained unchanged from the prior year based on transactions during the latest five-year period. Consolidation continued throughout the A/E industry, with most transactions involving engineering firms serving public infrastructure markets. These transactions have most certainly been fueled by the increased volume of federal funding bills, such as the Infrastructure Investment and Jobs Act (IIJA) passed in November 2021.

We have observed similar trends among the 10 publicly traded firms we track quarterly. During the latest 12-month period ended Sept. 30, 2023, each firm experienced an increase in gross revenue, totaling 15.8 percent combined. At the same time, the market value of equity of these firms increased approximately $10.2 billion (16.8 percent). With a similar increase in enterprise values for the 10 firms, these multiples trended upward.

The latest edition of the “A/E Business Valuation and M&A Transactions Study” is available at www.rog-partners.com/studies-perspectives.

Avatar photo

About Peter McManus

Peter McManus is an associate at ROG+ Partners; email: pmcmanus@rog-partners.com.

The post Executive Corner: Inside ROG’s Latest A/E Business Valuation and M&A Transactions Study first appeared on Informed Infrastructure.

Leave a Reply

Your email address will not be published. Required fields are marked *