Colorado Real Estate Journal - December 6, 2017
I work with architecture and engineering firms across the U.S. Always mindful of trends, this year alone we have seen a significant increase in mergers and acquisitions activity in the state of Colorado – 13 sale-side transactions all within the A/E industry alone. And the research mirrors what we’ve witnessed. Based on the “2016 Merger & Acquisition Survey by Zweig Group,” Colorado is the hottest state in the country for M&A activity. Of the firms surveyed during the research, 21 percent said they are considering M&A in Colorado. For comparison, only 5 percent of firms said they were interested in M&A activity in neighboring Utah. Looking ahead, it’s interesting to note that both the city and county of Denver are registered members of The National Council for Public-Private Partnerships, a Washington, D.C.-based advocate for what’s known as P3s. An emerging and innovative way to finance important infrastructure projects, P3s could be crucial as cash-strapped state and local governments look beyond traditional funding mechanisms – taxes and bonds – by tapping into private-sector resources. The state of Colorado has broadranging P3 legislation. These business-friendly policies along with Colorado’s expanding economy and employment base continue to attract individuals and businesses to the state. Our M&A survey also indicates geographic expansion as a key driver of activity. Architecture and engineering firms are trying to find a broader national footprint and increase the services and expertise available to clients. In May, our M&A services team represented Eppstein Uhen Architects, a leading architecture and design firm, as it expanded into the Rocky Mountain region by acquiring Denver-based architecture and interior design firm Burkett design (now BurkettEUA). Greg Uhen, CEO of EUA, noted that his team made the strategic decision to expand into Denver based on the region’s economic strength and projections of continued population growth. The Colorado state demography office paints an interesting portrait of the state’s future. According to the most recent data, the agency estimates that the state’s population will increase by nearly 52 percent, from today’s population of about 5.6 million to an astounding 8.5 million by 2050. That translates into a long-term need for more roads, single- and multifamily housing, office and retail – an ideal environment for architects and engineers, and the firms that employ them. Of course, the population boom has been underway for years now. Just in Denver County alone, the population grew by 15.4 percent, from 600,158 in 2010 to 693,060 in 2017, according to the U.S. Census Bureau. A friend of mine lives in Denver, and she recently told me, “It’s definitely booming. Lots of people moving in and the traffic is showing that, but an awesome place to live!” The M&A industry is complex and there are plenty of moving pieces, but a big piece of the equation is simple: talent. In a tight labor market, entry-level engineers are relatively easy to find. But the project manager with 10 years of experience? That’s a different issue. Buying a firm is often the easiest way to obtain the people a firm needs. In an article appearing in “Civil + Structural Engineer” magazine (published by Zweig Group), several sources speak to the recent acquisition of CH2M by Jacobs Engineering. In addition to market verticals, backlog and market share, a big part of that deal was about talent. It’s safe to say that the same dynamic is at play in the M&A industry here in Colorado. A big question mark looming over the U.S. engineering industry is the fate of the much talked about infrastructure bill. The Trump administration has yet to propose a detailed plan, and the specifics that have been made public are scant. But $1 trillion in upgrades has been mentioned, and it seems that the entire world was listening. In July, Korea based HanmiGlobal, through its American-based subsidiary Otak, acquired Denver-based Loris and Associates, a firm represented by Zweig Group. With the transaction, Otak expects to share project information with public construction customers in the U.S. and hold the lead in the urban restoration and environment friendly infrastructure construction markets. HanmiGlobal Chairman Kim Jong-hoon said the acquisition was made to gain an “advantage in the Trump administration’s infrastructure construction market.” In addition to the acquisition of Loris & Associates, we are seeing this global attention translate into a number of foreign entities seeking to acquire American-based A/E firms. Take for example the acquisition of Syncroness, a Colorado-based engineering firm. Syncroness was acquired by Alten Group, a European firm. As quoted by Mike Walraven, CEO of Syncroness, “This acquisition comes at an opportune time as the U.S. economy and market continue to improve, creating more opportunities for growth.” This supports the notion that AE firms are expecting to prosper from the announcement of a large infrastructure bill. We expect to see M&A activity remain consistently high within Colorado based on the state’s expanding economy, strong population growth, business-friendly policies and talented workforce.