Is the construction industry too consolidated?
Deal value tripled last year, with the trend likely to continue into 2025. What does this mean for the industry?
tl;dr
The construction industry is continuing the long march to consolidation, with M&A deal value tripling in the year to July 2024.
There are clear reasons for these deals, but there are also risks and downsides.
Of the hundreds of M&A deals globally, we pick 6 of the most interesting.
As always, skip to the end for a roundup of what we’re reading this week.
The industry is consolidating
On a recent episode of the Off Site Podcast, we talked about the acquisition of British contractor FM Conway by Vinci. The deal raised all sorts of questions — including the growing dominance of foreign firms in UK construction — but it’s far from unique.
In fact, we’re in the midst of a wave of consolidation in the industry. According to Deloitte, there were 528 merger and acquisition deals in the engineering and construction industry in the 12 months to July 2024
The combined value of these deals was US$38 billion, which Deloitte notes “is more than three times the deal value from the previous year.”
With interest rates declining, Deloitte sees this trend continuing into 2025. But what are the other drivers of consolidation?
The drivers of consolidation
The first reason we’re seeing consolidation is that major public works projects are getting bigger and more complex. These require firms with the skills, labour, and balance sheet to take on the risk.
The second is that consolidation is a path to growth. In a drive for efficiency and competitive advantage, firms will always look to expand their footprint through acquisition.
This isn’t unique to construction. Nearly every industry has been going through waves of consolidation — from supermarkets to doctors’ offices — and construction is no different.
The incentives for further M&A activity seem clear. If I had to make a prediction, I’d say we can expect more of the same in the year ahead.
The problems with consolidation
So, there are good reasons for consolidation in the industry. But what are the downsides?
1. Risk of systemic failure
As projects increase in size and importance, the contractors building them can become too big to fail. With the consolidation of expertise and capacity, strategically important public works projects can risk major delays if contractors go out of business.
Case in point: the long fallout of the failure of Carillion on the UK industry (more on that below).
2. Lower competition
Greater consolidation inevitably leads to less competition, and this can drive up costs. According to research, consolidation in the construction industry is partially pushing up the cost of road building projects by hundreds of millions of dollars per year.
3. Foreign ownership of a strategically important sector
In smaller countries like Australia — and even the UK — foreign ownership of strategically important sectors like construction can be a cause for concern.
6 notable deals from 2024
ACS Group purchases Dornan
In September, ACS group announced the purchase of Dornan, a specialist in the advanced technology sector.
ACS says that this will support its strategic growth in Europe, identifying over $20 billion in advanced technology project opportunities.
ACCIONA acquires Freya Renewables
In May, ACCIONA Energía acquired an 80 percent stake in Freya Renewables, a consultancy firm for renewable development based in the Phillippines.
This brings an additional 880MW under development for ACCIONA Energía.
ACS combines Dragados and Flatiron Construction
While not technically an acquisition, the integration in July of ACS Group’s civil engineering and construction businesses Dragados and Flatiron Construction is still a major deal.
Combined, they become the second-largest civil engineering firm in the U.S.
Stantec acquires Hydrock
On May 1, Stantec annouced the acquisition of Hydrock, an 950 person engineering design firm headquartered in Bristol, England.
This increased the Stantec workforce in the UK by 30 percent, with Hydrok generating turnover of £74 million in 2023.
Eiffage buys German infrastructure company Eqos
In April, French company Eiffage Énergie Systèmes purchased EQOS Group, a German company that specialises in technical infrastructure for energy, communications, and railway.
In 2023, Eqos had revenues of €459m and 1,700 staff.
Its purchase supports Eiffage’s moves into the German market, which is currently investing heavily in energy generation ands transmission.
Vinci’s purchase of FM Conway
On October 30, Vinci announced the purchase of FM Conway for an undisclosed sum.
FM Conway is a UK infrastructure family that specialises in transportation networks and the built environment, with revenues of £580 million to March 2024.
FM Conway is itself no stranger to acquisitions, purchasing Toppesfield in 2021 and Flowline in 2023.
The cautionary tale of Carillion
It’s common to see acquisitions as a way to reduce risk. But when these acquisitions increase debt to unsustainable levels and dilute the focus of the core business, then it doesn’t take much for the house of cards to collapse.
The most dramatic example of this is Carillion, which collapsed in 2018 following a period of aggressive expansion with many large acquisitions, particularly focused on services firms.
The BBC has a good, short overview. And whoever wrote this Wikipedia article deserves a medal.
The latest from the Off Site Podcast
This week, we discuss:
The construction of the world’s largest telescope in Chile.
Construction tech tools to watch in the future.
Webuild and Bouygues being awarded work on the Suburban Rail Loop and the impact of international contractors operating in Australia.
What we’re reading this week
This Science Friday article shows the construction of the appropriately named Extremely Large Telescope in Chile.
Brian Potter from the Construction Physics Substack dives into the (patchy) data to answer the question, How good are American roads?
China has started construction on the first offshore Gigawatt-sized solar power project.