Both the volume and value of deals were up on Q1, according to PwC’s latest deals insights report on the global engineering and construction sector.
Deals Insights Q2 2017. Deal value and volume increased by 72% and 9% to US$21.6bn and 49 in Q2 2017 respectively. The large increase in deal value in Q2 was primarily attributed to a relatively slow first quarter.
Following an unusually low Q1, construction materials manufacturing was once again the largest category in E&C deals, accounting for 30% and 37% of total sector deal value and volume, respectively.
The E&C sector saw four megadeals valued greater than US$1bn in Q2, up from the two in Q1 but down from the five of Q2 2016.
The largest transaction was in June, when John Deere announced the acquisition of Germany-based Wirtgen Group for US$5.2bn.
“Overall deal activity, however, remained largely flat in Q2 versus Q1 and down from H1 2016,” said Colin McIntyre, US engineering and construction deals leader. “The market shows signs of moving beyond the uncertainty that we believe contributed to a slow start to the year, particularly in Europe.”
The mega deals drove values back closer to historical seasonal levels. However, deal volume in Q2 continued to remain below historical levels, says PwC, resulting in less than 100 deals completed in the first half of 2017 (versus 135 in H1 2016). “While the number of larger transactions in Q2 2017 may be an indication companies are looking beyond the uncertainty that we believe plagued much of the market in Q4 2016 and Q1 2017, the reduced volumes suggests some level of ongoing questions,” says the analysis.
M&A activity continues to target the Asia & Oceania region, although the average deal size in this region remains relatively lower as compared with the North America and UK & Eurozone regions. The higher average deal size in the North America and UK & Eurozone regions was attributed to the larger share of ‘big ticket’ transactions − all four megadeals announced in Q2 2017 were from these two regions.
The global E&C sector ended the first half of 2017 with an investment interest of US$34.2bn, 23% lower than the same period of 2016. The majority of deal activity occurred in the construction materials manufacturing and civil engineering categories; it was attributed to an increase in infrastructure and utility construction projects.
The E&C sector has continued to benefit from the increasing rate of urbanization and infrastructure development in emerging economies like China and India. Meanwhile, developed markets are actively seeking geographical expansion and new project development opportunities in order to reduce their risk exposure.
There is a growing presence of tech companies and start-ups in the E&C sector, indicating an increasing potential for disruption. The sector has seen a rising interest in applications for mobile and cloud technologies, AI and robotics, augmented and virtual realist, and CAD software to make processes more efficient and streamlined. “We expect that increasing infrastructure investment in emerging economies coupled with advances in technology will continue to drive the activity for 2H 2017,” said PwC.