February 28, 2024

In 2023, uncertainty defined the year for many firms in the A/E industry. While some firms experienced robust revenue growth, others expressed skepticism about the future due to declining backlogs towards the end of the year, particularly in the architecture sector. In addition four interest rate hikes within the first eight months of the year and tighter capital directly impacted the cost and availability of capital to fund new projects. 

However, despite the increase in the cost of capital and uncertainty in some sectors of the economy, valuation multiples have remained steady, according to the recently released A/E Business Valuation and M&A Transactions Study. 

The study, now in its eleventh edition, included 257 transactions, including internal minority interest ownership transactions and controlling interest merger & acquisition transactions. The tables below illustrate the enterprise values of the surveyed and publicly traded firms as a multiple of earnings before interest and taxes, depreciation, and amortization (EBITDA). 

Minority Interest Enterprise Value Multiple

Controlling Interest Enterprise Value Multiple

Minority Interest Enterprise Value Multiple (Public Companies)

Most firms entered 2023 with positive outlooks, robust backlogs, and strong demand for services. But many of those same firms saw a decline in backlog levels over the course of the year and had good reason to be concerned about the outlook for private sector markets. In spite of this, firms serving private sector clients saw little to no decrease in work, highlighting the resiliency of private markets despite rising interest rates. And as illustrated above, minority interest multiples for privately held firms actually increased slightly in 2023.

Controlling interest multiples for mergers & acquisitions remained unchanged from the prior year based on transactions over the latest five-year period. Consolidation continued throughout the A/E industry, with a majority of transactions involving engineering firms serving public infrastructure markets. These transactions have most certainly been fueled by the increased volume of Federal funding bills, such as the Infrastructure and Jobs Act (IIJA), passed in November of 2021.

We have observed similar trends among the ten publicly traded firms that we track quarterly. Over the latest twelve-month period ended September 30, 2023, each firm experienced an increase in gross revenue, totaling 15.8% combined. At the same time, the market value of equity of these firms increased approximately $10.2 billion or 16.8%. With a similar increase in enterprise values for the ten firms, these multiples trended upward.

The latest edition of the A/E Business Valuation and M&A Transactions Study is available at https://www.rog-partners.com/aestudy.

pmcmanus@rog-partners.com
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