Headline this morning is that Jacobs Engineering, a 48,000 headcount company, is buying Carter Burgess, a 3,200 headcount company. Does it seem to you that engineering companies are being vacuumed up into a few large mega-companies? By most measures, a company with 3,200 professional knowledge workers is quite large. Yet its assimilation into Jacobs will barely nudge total employment in that company.
Seeing all these engineering companies being acquired makes me wonder, "Are these acquisitions the animal spirits that signal a market top?" As someone who spent a couple of years selling real estate in the eighties, I am very sensitive to any hint that the market for engineering services is going down. After all, the market wisdom that I subscribe to says that a hot market is good evidence that the top has been reached. And if a top has been reached, that means that the future is down.
Yet, in this case, I think that the people buying up engineering companies have got it right. Our society has under invested in infrastructure, especially energy, for so long that we have a lot of catching up to do. Most reasonable people would judge that the balance will change soon and investment in infrastructure will again be a driving force in the domestic economy.
Conditions certainly seem favorable for such a change. Our economy is awash in investment capital today, available at very low interest rates. Instead of investing in sub prime residential real estate, investment in solid investment return genereating assets is growing more attractive. That has got to be very positive for capital spending, which is what provides an attractive environment for engineering companies.
It is also true that our political establishment is coelescing around the idea of reducing US dependence on foreign sources of energy. It does seem to be an idea whose time has come. While the idea of complete energy independence is whistling past the graveyard, it is a fact that the North American continent can produce a great deal more energy than it does today. But to produce that energy in the safe and environmentally acceptable fashion will not only be expensive, but will require large sophisticated project organizations that can operate on a large scale with access to a broad spectrum of intellectual resources. Those organizations must also be sophisticated in dealing with the spectrum of public stakeholders who will be affected by such projects and who must be appeased for them to go forward.
Which brings us back to Jacobs, whose market is primarily large capital intensive energy projects, and their purchase of Carter Burgess, strong in infrastructure permitting and planning. Perhaps the market is indeed evolving in its mysterious way to create organizations necessary for the coming century. On the other hand, most evolutionary developments are dead ends. Put down your money and make your bets!
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3 comments:
Interesting article and would agree with your conclusion on the need for "infrastructure".
Although the time to become independent of foreign energies can probably still be debated given the vast reserves I believe are available to us within our own US Boundaries.
With regards to larger companies buying out smaller firms may be nothing more than satisfying share holders and showing results or should I say speculation thereby inflating price value?
Stantec is doing the very same and not sure whether or not such large firms can stay competative unless they provide services to the governemnt whose pocketes are deep.
If the US decides to upgrade infastructure then DOT companies will do well and small firms like myself will not thrive (one example). However, most infrastructure that TI Design pursues are local and more cost friendly to the client. Larger companies don't have the ability to be profitable on these smaller projects due to overhead that can't be sustained by local entities?
Just my 0.02cents...
Your points are well taken, but I would add a couple of adders and thoughts about cost. Particularly as regards companies such as Jacobs, Stantec and other mega-engineering companies. Is cost of engineering service really the issue?
Granted small companie can provide more cost effective solutions, or at least that is the perception. Certainly my whole career in this industry has been driven by the word "cheaper". I agree that first level clients, that is project managers and others who work directly with engineering service companies, choose with price as a prime consideration.
But I think that the higher levels of managment in client organizations tend to be more concerned about choosing engineering contractors that have a level of financial and organizational resources that ensure a high degree of confidence in being able to accomplish the project, as well as make good on any defects in the project.
Jacobs, as a prime example, has perfected the art of creating all inclusive alliances with client companies at the highest level within the client organization. Smaller engineering contractors like you or I, get cut out of the business in such cases.
We are focused on addressing the concerns of those first level client project managers, while larger engineering organizations address the concerns of client company executives. Thus we can lose long established clients irrespective of the advantages we have in cost and service.
I can't disagree with you Bill. It is true that larger firms have earned their stripes and clients know what they are getting. Namely peace of mind and they get to go home at 5 and get a good nights rest?
That is what we strive for? To be selected based on service.
Although engineering costs can be an issue for us smaller firms. It appears that this is not the case for the larger entities such that it does not dictate the relationship between the two.
What I noticed in the past 7 years during the development boom was how engineering firms were looked upon as a comodity rather than a service. It was as you stated "cheaper" and the unwillingness to accept our profession.
On the other hand I have met other clients who did understand the task at hand and listened to what we engineer/owners had to say.
Times are different now in that most jurisdictions are employed with professionals and certain industry/client leaders are still in business beacuse they trusted the engineer.
I am confident that we can continue to maintain our competativeness irrespective of these larger firms.
Merry Christmas...
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