The scorching pace of recent M&A activity has slowed slightly in 2022, primarily due to economic and geopolitical uncertainty. Deal activity is expected to remain stable in the near term. Capital availability along with private equity (PE) investors and strategic balance sheet strength are expected to drive this continued investment.
Deal activity was consistent with pre-pandemic levels, despite deal volume declines in the last quarter. Volumes over the last four quarters ending in the first quarter of 2022 surpassed pre-pandemic levels by 18%. Deal values declined in the last two quarters due to fewer megadeals (deals of at least $1 billion in value), with companies increasingly cautious of complications arising in government approvals.
Deal volume growth over the last four quarters was driven by North America activity across all engineering and construction (E&C) subsectors, with the exception of construction machinery. This region experienced a shift toward local, strategic investor deals — highlighting the impact of global economic headwinds.
The outlook for the E&C sector deal activity remains optimistic, driven by continued availability of capital and buoyed by the Infrastructure Investment and Jobs Act — despite headwinds from slowing economic activity, rising interest rates and cost pressure from rising material costs, increased competition for labor and ongoing supply chain issues.
The recent uptick in the residential market’s performance is expected to continue due to interest rates still low by historical standards, a housing gap due to underbuilding in the last decade, the millennial generation entering prime home-buying age and housing inventory near all-time lows.
The non-residential market segment is expected to grow, but the outlook is mixed by sector. Transport, manufacturing and education are expected to benefit from spending associated with the infrastructure bill, while construction spend related to offices and hotels is expected to contract, impacted by continued remote working and business travel trends post pandemic.
“E&C deal activity is expected to remain stable due to the Infrastructure Investment and Jobs Act, private equity and corporate dry powder, realignment of end market exposure and acquisition of new technologies to support operations, despite the impact from inflation, supply chain disruption, labor shortages and the war in Ukraine.”