M&A directions in the professions
Where are consulting
engineers heading?
Marc Ewen
Senior Analyst, Beaton Capital
May 2012
©Beaton Capital 2012
A great deal can be gleaned about the future
direction of the professions by looking at what the
largest constituent companies are up to.
In accountancy the Big4 are making a concerted
effort to grow their advisory practices to help
counteract the slowing growth in their traditional
divisions of assurance and tax. In law we are
witnessing a ‘dash’ for globalisation by some and
a more considered approach by others. So where
then does all this leave the consulting engineers?
The engineering profession is the largest
professional services sector by some way
generating over US$1 trillion in global revenue
annually compared to US$360bn for accounting
and US$500bn for law. Whilst the legal profession
is highly regulated and jurisdictional, and
accounting operates in a regulated environment
undertaking unregulated activities, the engineers
have relative freedom to practise their craft
without nearly as much regulatory constraint. As
a consequence the engineers have a much broader
footprint of activity than even the accounting
firms with their consulting practices.
Table 1: 2010 revenue of top 10 firms providing consulting engineering and design (C&D) services
Rank
Firm
Total Revenue
US$m
C&D revenue as
%of total
1AECOM
5,9206,54690.4%
2URS
5,0399,17754.9%
3Jacobs
4,7489,91647.9%
4WorleyParsons
3,6515,04872.3%
5
3,6036,30057.2%
CH2M HILL
6AMEC
3,3994,56574.5%
7Fluor
3,12820,84915.0%
8Fugro
3,0013,02299.3%
9SNC-Lavalin 2,8496,00147.5%
10ARCADIS
2,6532,65599.9%
©Beaton Capital 2012
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C&D revenue
US$m
Where are consulting engineers heading?
Marc Ewen
In the past there was a clearer distinction between
the pure consulting engineers and the engineering
consultancies - the latter being a variety of
configurations around EPCM, ECP etc. Today the
EPCM firms include CE activities and the most
purist CE firms can be found undertaking aspects
of EPCM work. It does make comparison between
these firms difficult – even stock exchange
categorisations look confused on occasion. A
noticeable trend for the CE firms is diversification
to get a seat at the decision-making table, not
just queuing to serve at it - so we now see some
firms investing in projects and others acting as
policy advisors to government. Many CE firms team
together on large projects in a way the lawyers
and accountants could never fathom. The biggest
advantage for these firms over their cousins in
accounting and law is their ability and willingness
to incorporate, and truly act as one firm globally.
Table 1 lists the global top 10 firms by consulting
and design (C&D) revenue (firms do not
consistently separate this data for financial
reporting) compared to the total revenue of the
firm. The proportion of revenue attributed to C&D
relative to the whole demonstrates the diversity
of the broader industry. For example AECOM’s C&D
activity is 90% of the whole whilst Fluor is 15%.
One is a firm that is C&D led, the other is EPCM led.
The other firms have a different range of mixes
albeit weighted more to C&D.
To understand some of the recent trends the
publicly listed companies provide the best source
of information (Table 2). The last five years has
been mixed for the five largest public firms. Each
of the firms grew their revenue over the period
however AECOM was the only firm to achieve
positive growth year-on-year and in doing so
notched up a 90% total increase from $4.2 billion
to $8 billion. URS and WorleyParsons show the
impact of some major acquisitions in specific years
then see revenue declining in other years. This
compares to modest growth from Jacobs of 22% to
$10.3 billion and AMEC growing from £2.4 billion
to £3.2 billion despite having the highest number
of acquisitions, which fact is considered below.
Not surprisingly 2009 and 2010 proved to be tough
years for some of these firms as the sector was
buffeted by the GFC, but it does highlight that the
storm did not affect all and its impact was very
mixed.
Table 2: Total revenue and growth of 5 largest publicly listed firms 2007 to 2011
20072008
2009
Growth%
2010
Growth%
2011Overall
Growth%
Growth% Growth%
AECOM
4,2375,195 22.6%6,119
17.8%6,546
7.0%8,037 22.8%
89.7%
URS
5,38310,086 87.4%9,249
-8.3%9,177
-0.8%9,545 4.0%
77.3%
Jacobs
8,47411,252 32.8%11,467
1.9%9,916 -13.5%10,382
WorleyParsons3,525 4,882
AMEC
4.7%
22.5%
38.5%6,219
27.4%4,967
-20.1%5,904 18.9%
67.5%
2,3562,606 10.6%2,539
-2.6%2,951
16.2%3,261 10.5%
38.4%
Note - All monetary amounts in firms’ home currency (HC)
©Beaton Capital 2012
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But revenue growth is only part of the story, what
is of interest is the differential attitude to mergers
and acquisitions. A study of the acquisition
activity of the top 5 publicly listed engineering
consulting and design firms – AECOM, Jacobs
and URS from the NYSE, AMEC from the LSE, and
WorleyParsons from the ASX – over the four
years from 2008 to 2012 reveals a staggering 59
acquisitions, with over a third coming from AMEC
and 24% from AECOM (Table 3).
Table 3: Number of acquisitions by firm – January 2008 to May 2012
2008
2009
2010
2011 2012Total
AECOM
3 4511
14
AMEC
9 4 4 5 -22
Jacobs
1 1 4 2 -8
URS
2 11318
WorleyParsons 3 2 1 1 -7
Total
18 12 1512 259
This paper does not seek to investigate the revenue
or headcount acquired through acquisition, rather
it looks to see if there are other strategies to
generate a competitive edge, such as geographies
entered or specialisations acquired.
Geographically the spread still shows a focus on
North America (53%), Australia (12%), UK and
Eurozone (14%), which may reflect more on the
availability of suitable candidates for acquisition
than the market for available projects (Table 4).
However, the recent growth in the North American
alternative energy sector and the Australian
resources sector has driven the need for additional
expertise.
©Beaton Capital 2012
4
Of the firms themselves, AMEC has been the most
globally diverse in its acquisitions strategy with
over 85% of purchases being based out of its
home market (UK). This compares with 71% for
Worley Parsons (Australia), 64% for AECOM (US)
and 50% for Jacobs (US). Whereas all bar one
of URS’s acquisitions were in North America.
Collectively there is a clear push to increase
the global footprint and regardless of the home
stock exchange these firms now operate as truly
international corporations.
Where are consulting engineers heading?
Marc Ewen
Table 4: Acquisitions by geography of target – January 2008 to May 2012
USA
CAN AUS
UK
EZ
AFR
IND BRA
ME
PRC GlobalTotal
AECOM
52-- 2-1--13
14
AMEC
7 453 1- - -1- 122
Jacobs
4 --1 -11--- 18
URS
61-- ------18
WorleyParsons
1121 -1-1-- -7
Total
23875 322111 6
59
Table 5: Number of acquisitions by target sector – January 2008 to May 2012
Multi
O&G Water Def
Govt Infra MiningEnergy Trans Total
AECOM
10-1-2---114
AMEC
1271- - -11-22
Jacobs
3 -23-----8
URS
2 2 -112- -- 8
WorleyParsons
51---11--7
Total
321044 3 31 1159
An analysis of the acquisitions by the target firm’s
sector reveals some interesting results (Table 5).
More than half of the 59 deals involved acquisition
targets that were operating across more than one
industry sector, an indication perhaps that once
consulting engineering firms reach a certain size
they need to bulk up across various fields for
quantum leap growth. This is supplemented by
specialist purchases. A case in point is AMEC that
acquired 12 multi-disciplinary firms in US, Canada,
Australia and UK and 7 oil and gas specialists
split between the UK, US, Australia, Canada and
Kazakhstan.
Other firms had more diverse acquisitions:
AECOM were only on multi-disciplinary practices
supplemented by government and transport;
URS across oil and gas, defence, government,
infrastructure and multi-disciplinary; and
WorleyParsons look set on oil and gas, mining and
infrastructure, supplemented by multidisciplinary
firms in Australia, Canada, UK and Brazil.
©Beaton Capital 2012
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Acquisition activity does signal strategic intent
to create a competitive edge – the relentless
search to create an imperfect market in the
homogeneous world of engineering. On the face
of it all these firms are chasing similar markets
but in varying degrees of intensity – there appears
little differentiation from a skills and markets
perspective. Hence the earlier observation that
many of these firms seek ‘head of table’ roles as
principals in projects and advisors to government
to capture the downstream engineering work.
The ability of these firms to pull this off will be
a function of both brand permission and culture.
Will the market grant them brand permission to
move into new disciplines and can the culture of
these firms attract and hold a different expertise
set - namely non-engineers? The transformation
challenges for these organisations will be
considerable.
Marc Ewen, Senior Analyst, Beaton Capital
marc.ewen@beatoncapital.com
P: +61 2 9231 8888
www.beatoncapital.com
+ Melbourne
+ Sydney
+ Hong Kong
©Beaton Capital 2012
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