PwC's Deals Sector Leader John Potter and other partners discuss the deals outlook for 2022.
Favorable capital market trends fueled by the Federal Reserve’s pandemic-era bond-buying programs and low cost of capital helped boost engineering and construction (E&C) sector deal volume in the first nine months of fiscal year 2021.
M&A volume exceeded pre-pandemic levels by 14% across all E&C segments. While overall deal value rose in fiscal 2021, the average deal size decreased compared to fiscal 2020, primarily due to fewer megadeals.
While the increase in 2021 deal volume compared to pre-pandemic levels was consistent across segments, private equity transactions in North America experienced higher growth relative to other regions.
The E&C sector is well-positioned for strong activity in 2022 despite the continued impact on margins by global supply-chain disruptions, rising material input costs and labor shortages.
The Infrastructure Investment and Jobs Act is expected to propel deal activity in the nonresidential market segment, with a particular emphasis on digital technologies. This is in addition to a shifting landscape requiring companies to deploy capital on investments that optimize operational efficiencies, deliver cost savings and enhance capabilities in green construction.
The residential construction segment’s recent performance is expected to continue over the short- to medium-term along with historically low interest rates. The Federal Reserve’s decision to scale back and end the pandemic-driven stimulus program by mid-2022 could likely mute growth in the longer term.
“Despite sustained commodity and labor cost pressures, tailwinds from the Infrastructure Investment and Jobs Act, readily available capital from corporations and private equity funds and the focus on ESG capabilities or “green” construction are expected to drive continued strong deal activity within the engineering and construction sector.”