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Big deals return as builders adapt to policy shifts and rising costs
After a cautious first half of 2025, dealmaking in engineering and construction (E&C) regained momentum in the second half, though overall M&A remained below 2024 levels. Large transactions exceeding $1 billion reemerged, lifting cumulative deal value in the third quarter even as deal volume contracted slightly. The pattern reflects a market where confidence is returning at the top end, but investors remain selective amid cost inflation, labor shortages, and uneven access to financing. For many, M&A is becoming less about broad expansion and more about repositioning for policy certainty, supply chain resilience, and productivity gains. Buyers are adapting to shifting U.S. trade and industrial policy by using M&A to strengthen domestic capacity and reduce supply chain risk.
Key developments shaping the second half of 2025:
- Policy clarity revives confidence: U.S.-targeted M&A surged 66% in the second half as firms adjusted to the administration’s reinforcement of the Build America, Buy America provisions. Construction and building materials subsectors led this rebound as companies sought to derisk supply chains, expand domestic capacity, and offset tariff impacts. The renewed flow of domestic deals suggests a shift from caution to action as firms align footprints with evolving federal policies.
- Labor and input costs fuel consolidation: Rising material costs and shortages of skilled labor continue to compress margins across the construction value chain. M&A is emerging as a defensive and strategic tool, offering scale advantages in procurement, broader access to labor pools, and opportunities to adopt labor-saving approaches such as prefabrication and modular construction. Building materials producers are targeting combinations that stabilize input costs and strengthen regional reach, while specialty contractors are using consolidation to strengthen more consistent execution.
- Residential demand remains resilient, but more disciplined: Homebuilding deal volume and value held steady through late 2025, though activity remains below 2024 levels. High interest rates, construction costs, and tight credit have tempered large-scale investment, prompting a more selective approach. Instead of pursuing national consolidation, acquirers are focusing on targeted and regional deals that expand market reach or access to skilled labor. The sector’s resilience—driven by underlying housing demand—points to potential renewed momentum once financing conditions ease.
- AI transforms demand and delivery: The industry is moving beyond pilot programs toward measurable gains in design, scheduling, and project forecasting through AI-driven tools. Externally, AI is also driving a surge in data center and digital infrastructure projects, fueling record demand for power-related construction and grid modernization. This dual dynamic of internal efficiency gains and external infrastructure buildout marks one of the most consequential industry transformations the E&C sector has seen in decades.
Together, these trends reveal a market recalibrating around policy stability, cost discipline, and digital acceleration. E&C companies are using M&A not just to withstand volatility, but to modernize operations and capture opportunity in a shifting domestic market.
As these forces continue into 2026, the sector’s near-term M&A outlook will be shaped by how companies build scale, address labor and cost pressures, and adopt technologies that support more efficient and resilient delivery.
Key M&A trends to watch in 2026
In 2026, the E&C sector will continue to balance rising input costs, ongoing labor shortages, and shifting policy dynamics with long-term demand tied to infrastructure investment, advanced manufacturing, and data-center development. These crosscurrents are shaping how investors assess risk and identify opportunities. Two themes are expected to guide M&A activity over the next six months.
Dealmakers who align their strategies with these structural drivers—scale, labor efficiency, technology adoption, and supply chain stability—will be best positioned as the E&C sector moves toward more resilient, digitally integrated, and sustainability-focused models.
“We expect deal activity to tick up as firms use M&A to tackle labor shortages, manage tariffs, and capture growth in data centers and grid modernization.”
Danny Bitar,US Engineering and Construction Deals LeaderThe bottom line: What engineering and construction dealmakers should watch in 2026
E&C dealmaking in 2026 will be shaped by continued consolidation and ongoing technology-driven change. With infrastructure, data center, and energy-transition activity supporting demand, disciplined buyers can use M&A to build scale, improve productivity, and strengthen resilience. As labor constraints, cost pressures, and policy dynamics continue to influence the market, firms that integrate technology, pursue scalable platforms, and enhance supply chain stability will be positioned to lead the next phase of industry transformation.
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