Engineering: Overview of Mergers & Acquisitions in 2022

Further sector growth in 2022

2021 was characterised by the post-Covid economic recovery. Engineering companies benefited from the catch-up effects: projects originally planned for 2020 were launched and projects interrupted during the successive lockdowns were resumed. This recovery was all the more important as it was supported by the public authorities through various aid schemes for companies set up under the “France Relance” plan, with a budget of €100 billion.

However, at the beginning of 2022, engineering professionals were wondering about the sustainability of this recovery and the level of growth that the engineering, design and technical consultancy sector would show at the end of the year.

Ultimately, the 2022 financial year was a continuation of the previous one, with players in the sector as a whole managing to maintain their growth momentum. It is important to note, however, that this upward trend was unevenly distributed across the different engineering sectors. While engineering consultancies recorded growth of around 8% at the end of the year, driven in particular by the recovery in their two main client markets, aeronautics and automobiles, construction consultancies suffered from the downturn in the public works and new housing markets (rising costs and pressure on local authority finances), and recorded growth of only 3%.

Energy transition as a driver for the sector

A basic trend that has already been observed in previous years – the concern about environmental and energy issues – has become even more pronounced in 2022. While the demand for engineering services in the field of sustainable development was previously driven mainly by the need for large clients to meet their CSR commitments and by government incentives, it has been greatly intensified by the record rise in energy prices, resulting from the accumulation of various economic factors (strong recovery of world production post-Covid, etc.) and geopolitical factors (war in Ukraine, etc.), putting severe pressure on production costs. Consequently, controlling energy costs has become a key issue for manufacturers and project managers. In order to improve their margins, the latter are forced to turn to specialised engineering companies to help them with their transition projects around 5 main themes:

• Production, transport, distribution and storage of energy
• Low-carbon, sustainable transport methods
• Decarbonisation of industrial activity
• Construction and renovation of buildings (positive energy)
• Adaptation of local territories to climate change

Changes in demand for engineering services related to environmental and energy issues

Graph taken from the report “Engineering professions and skills in the age of global warming” (OPIIEC, 2022)

The solution offered by engineers to this new demand requires many complementary skills: energy engineering (fluids, renewables, etc.), climate engineering (HVAC, etc.), electrical engineering (CFO-Cfa, GTB-GTC, etc.) and environmental engineering (air, water, waste treatment, etc.). In order to adapt to market changes, engineering service providers are now faced with a strategic choice between diversification of expertise and specialisation.

The emergence and strong growth of technical assistance providers is also the result of this growing demand for industrial project skills.

The performance of consultancies specialising in sustainable development for real estate professionals, such as Arp Astrance and G-ON, perfectly illustrates the evolution of demand in 2022: each of them recorded a growth rate of almost 100% by the end of the year.

Recruitment difficulties persist

Following the COVID health crisis, during which engineering companies tended to seek to control their wage costs, the economic upturn has created an urgent need to strengthen the workforce to meet increased demand. In 2022, there were almost 175,000 job vacancies in the sector, an increase of 33% on the previous year.

This need is twofold. On the one hand, engineering companies need to adapt to market changes and recruit engineers with new skills that clients are looking for (energy performance, carbon impact, etc.). On the other hand, the independent players competing with the engineering majors need to reach a critical size in order to be referenced by major contractors and project managers and to win tenders.

But this recruitment policy faces structural obstacles. Firstly, the constant shortage of skilled workers in the sector puts pressure on recruiters to offer higher entry-level salaries and then salary increases, which puts pressure on staff costs. Secondly, the profession has a high job turn-over rate, averaging between 15% and 30%, which forces companies to multiply retention initiatives: continuous training programmes, improvement of the quality of life at work (QWL), international mobility programmes, etc.

External growth as a solution to the sector’s problems

Despite the uncertainties linked to the geopolitical backdrop and the potential obstacle of rising interest rates, the engineering sector, whether in construction, industrial processes, energy, innovation or technical support, remained dynamic in terms of mergers and acquisitions in 2022.

This trend can be explained in particular by the fact that reliance on external growth is one of the main levers for responding effectively to the problems faced by sector operators.

In order to overcome recruitment difficulties, many engineering companies have opted to acquire competitors with complementary activities and skills in order to rapidly expand their workforce with qualified human resources (e.g. acquisition of general contractor VISA INGENIERIE by GROUPE GUITON; acquisition of engineering consultancy BTM CONSULTANTS by B-HIVE).

An analysis of M&A transactions in the sector in 2022 also shows that many mergers and acquisitions were motivated by the need to acquire or strengthen very specific technical skills in response to changes in client demand, particularly in the field of environmental engineering (e.g. acquisition of CLIMACOOL by BLUE PEARL ENERGY; acquisition of ATP by ALTER EGO), industrial environmental diagnostics (e.g. acquisition of ENVIRONNEMENT – INVESTIGATIONS by GROUPE GINGER; acquisition of ACTERRA by INGEROP), or low-carbon transport (e.g. acquisition of ACTIA POWER by PLASTIC OMNIUM).

Sources: OPIIEC; Xerfi reports; “Champions of Growth 2022” ranking by Les Echos and Statista.

EXAMPLES OF M&A TRANSACTIONS IN 2022 INVOLVING FRENCH COMPANIES IN THE ENGINEERING SECTOR: