Engineering and construction (E&C) dealmaking surges as capital targets AI, power, and infrastructure growth

Key findings 

• High-growth infrastructure verticals, led by data center growth, electrification, grid modernization, defense spending, and large infrastructure projects, are driving the next wave of M&A in the E&C sector.

• Tariff uncertainty and labor scarcity are shifting investor preference toward services-oriented and specialty businesses.

• AI is reshaping E&C as both the top demand driver for nonresidential construction and a competitive differentiator in project delivery.

Growing verticals are reshaping deal flow. M&A tied to high-growth end markets—data centers, energy and grid infrastructure, water systems, and institutional facilities—has continued to drive E&C dealmaking in the first half of 2026. Data center capacity is expected to nearly triple by 2031, adding roughly 75 gigawatts (GW) of incremental load and driving unprecedented demand for electrical infrastructure, precision cooling, fire suppression, and related specialty contracting. Investor-owned utilities have earmarked more than $1.4 trillion in capital spending over the next five years for grid resiliency, hardening, and modernization, creating a parallel pipeline of opportunity for contractors and building products manufacturers positioned in power distribution, generation, and emerging electrification categories such as heat pumps and EV charging infrastructure. Aging and long-underfunded water and wastewater infrastructure is also generating deal activity as municipalities and industrial users accelerate capital programs in advance of tightening regulatory requirements. For dealmakers, these verticals offer structural, policy-supported demand that is far less interest-rate-sensitive than traditional residential and commercial construction.

Tariff volatility and input-cost uncertainty are tilting deal flow toward services and away from products. The administration's evolving tariff regime has introduced significant unpredictability into building products valuations. Imported materials face layered duties, and even domestically manufactured products are absorbing higher raw material and logistics costs. As a result, buyer appetite has shifted toward asset-light services businesses such as specialty contractors, maintenance and facility services platforms, and installation-focused providers, where margin profiles are less exposed to commodity swings (e.g., elevated commodity chemical prices) and where persistent labor scarcity provides a natural barrier to entry. This trend is reshaping the traditional manufacturer-distributor-contractor value chain, creating larger, more integrated platforms that are better insulated from market volatility.

AI is both a demand catalyst and a capability differentiator. The dual impact of AI on E&C is now unmistakable. On the demand side, the race to build AI compute infrastructure is the single largest driver of nonresidential construction growth and is pulling specialty E&C firms into hyperscale projects requiring complex mechanical, electrical, and plumbing execution. On the capability side, while still early, AI adoption within E&C firms is moving beyond pilot programs. AI-enabled construction technology platforms addressing preconstruction estimating, progress monitoring, materials procurement, and design optimization are attracting significant investor interest. Notably, engineering firms are deploying AI to compress design cycles and reduce rework, unlocking margin in a segment historically constrained by labor-intensive workflows. First movers in AI-enabled delivery are commanding valuation premiums, and we expect acquirers to increasingly target scaled platforms that embed AI into core project execution.

The defining tension for E&C dealmakers has come into sharp focus for 2026. Secular growth verticals offer a structurally attractive destination for capital redeployment, but elevated financing costs, a persistently tight labor market, and regulatory-driven project-delay risk are raising the bar for value creation. Winning in this market requires both identifying the right end markets and the operational depth to deliver in them.

AI, data centers, and power: Buyers will continue to prioritize assets exposed to data center and power-related buildouts, but underwriting will become more precise. The winning assets will be companies with significant involvement in hyperscaler programs, electrical and mechanical intensity, cooling, fire suppression, commissioning, and utility or grid adjacent projects. That is where backlog quality, margin durability, and strategic scarcity are strongest. Public and industry data reveal that AI is accelerating data center development, power demand is climbing, and contractors with programmatic exposure are pulling away from the field. These companies will continue to command premium valuations and attract dealmakers making big bets on AI as a structural force.

Continued labor shortages: E&C dealmakers aren't just buying revenue—they're also buying foremen, certified trades, and the operational discipline to deliver complex projects without margin erosion. E&C firms that have cracked workforce retention and training pipelines carry a structural advantage in the market. The reality of the current E&C labor market will keep specialty contractor roll-ups active and sharpen interest in targets with attractive construction technology, workforce analytics, field productivity, and modular delivery capabilities. The market is also beginning to price this correctly; businesses with deep self-perform capabilities and low supervisor turnover are commanding premium multiples, and that gap will widen. Sponsors and strategics will continue stress-testing targets for labor concentration, supervisor depth, self-perform and specialty capabilities, and geographic repeatability.

Fuel prices: Elevated oil prices will continue to exert pressure on the E&C sector throughout the second half of 2026, particularly for E&C companies with fixed price contracts who will struggle to pass higher costs onto project owners. This compression on construction project margins will be a catalyst for consolidation. Larger, well-capitalized acquirers will be better positioned to absorb cost volatility and negotiate fuel and supply contracts at scale, putting smaller operators at a disadvantage and making them attractive targets. Elevated and unpredictable fuel and building product input costs may also result in delayed project timelines, causing some E&Cs to shift focus toward M&A targets with strong project backlogs and established cost escalation provisions in their contracts.

Engineering and construction M&A at mid-2026 is being shaped less by broad demand recovery than by scarce capabilities. Buyers are concentrating on assets with significant exposure to AI infrastructure, power and grid investment, and specialty scopes that are hard to staff and difficult to replicate. The firms best positioned for the next six months are those that can pair backlog with labor access, execution discipline, and strategic adjacency across products, distribution, and services.

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