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Neil Churman Sits Down With Environmental Business Journal

By Neil Churman | December 5, 2018

Recently Neil Churman, Director at 7 Mile Advisors, sat down with the Environmental Business Journal to answer their questions regarding 2018 M&A trends.

See his interview below.

2018 has been somewhat of a departure from recent industry M&A history. A few of the more notable trends we’re seeing include a focus on technology, continued interest from private equity, and a focus on core services among some larger firms, which has led to several notable divestitures. To the first item, we’ve seen continued activity from private equity, particularly for add-on acquisitions for their portfolio companies. Some of the more notable active players have been TRC, now backed by New Mountain Capital, several of Bernhard Capital’s portfolio companies including Bernhard Energy Solutions, Atlas Technical Consultants, and ATC, and Ardurra-King Engineering, which is backed by RTC Partners. There have also been a few notable transactions involving firms changing hands between private equity groups. First Reserve acquired CHA Consulting, which had previously been part of Long Point Capital’s portfolio and CLEAResult moved from General Atlantic’s portfolio to TPG and The Rise Fund. Long Point Capital has remained active in the sector, however, making a significant minority investment in Woolpert late last year.

In terms of technology, we are seeing more deals blend traditional AEC services with IT, software, and other technology services. In addition to our focus on the AEC industry, we have a significant practice at 7 Mile Advisors focused on business services and technology, and more and more, our clients seem to fall in both of those parts of our business. Tetra Tech, SNC Lavalin, ARCADIS and Jacobs have all made notable tech plays recently. The strategy for AEC firms is both to differentiate through technology, as well as to find ways to diversify their revenue streams into more recurring or subscription-based revenue, as opposed to the traditional project-based, “time for money” models. For a little more on that topic, we recently put together a blog post with some details on the trends we are seeing there.

Lastly, I’d say some larger firms that were involved in significant consolidation over the last 10 years or so have looked to strategic divestitures to return to their primary strategy and monetize non-core assets. Tetra Tech divested its Western Utility division to Hylan, which is a turnkey telecom contractor backed by TZP Group. HDR sold its ICA Asset Management division, which it had acquired a few years ago, to DBi Services, which specializes in infrastructure operations and maintenance. Last year, Stantec sold Innovyze, its software business it had acquired through the MWH deal.

Further to the discussion around divestitures, I do think we are seeing some of the larger players decelerate a bit in terms of consolidation. I think it’s a combination of focusing on core strategy and organic growth, with frankly “running out of real estate” in certain markets. Stantec is a good example, which over the course of more than 100 deals, has expanded to nearly every corner of the U.S. and Canada across all of its service lines. More recently, they’ve expanded into New Zealand and the U.K., further diversifying their geographic exposure. I think we will continue to see the largest firms involved in dealmaking, but it’s going to be more selective.

Yes, on the flip side of the larger firms slowing a bit, we are seeing more midsized firms involved in M&A. Part of it seems to be driven by a need to remain competitive with some of the larger, international players. The other part is increasing scale and sophistication among mid-size firms in terms of strategy and capabilities. Earlier this year, we compared the 2018 ENR Top Design Firms list to the 2008 list to see how it’s changed over that period. What jumped out is the two fastest growing groups were the Top 10 firms, which largely have grown through megadeals like AECOM-URS, Stantec-MWH, and Jacobs-CH2M, and the firms ranked between #51 and #200. These midsize firms have revenues somewhere on the order of $70 million to $300 million. They certainly are not on the scale of the $1 billion-plus revenue firms, but a firm of that size has enough scale to have the financial resources to pursue multiple M&A opportunities, as well as provide an attractive home for a firm considering a sale that doesn’t want to be part of one of the global firms.

I think we continue to see a dynamic where firms that went through tough financial periods during the 2008–2013 time frame kick the can down the road on ownership transition and now have owners that are five to 10 years older and still owning considerable amounts of equity. We find it’s often hard for employees to “write a check” to buy out the current shareholders and I think we’re also finding that, particularly with second-generation owners, the complexities and regulatory requirements of ESOPs are less appealing. The result is we’re seeing more firms seeking out M&A opportunities where they are in the “driver’s seat.” That is, selectively pursuing buyers and/or private equity groups they deem as good strategic and cultural fits and then being in position to pursue the best combination of fit and economics. We frequently work with clients that take a position of not wanting to “put the for sale sign in the yard” yet are open to exploring the right opportunities through a tightly managed process. It allows firms to discretely explore the market, compare M&A partners side by side in real time, and maintain the option of walking away if the right opportunity doesn’t materialize.

Generally speaking, yes. Private equity’s interest in the environmental, engineering, and consulting sectors continues to increase. We see both small and large funds looking to make plays in the space. I think it’s a combination of funds becoming more comfortable investing in project-based, people-centric businesses coupled with a glut of available investment capital. We get inquiries on a nearly daily basis from private equity groups looking for opportunities in the space. I’d also suggest that private equity groups are becoming more flexible in their structures, which is attractive to industry firms. The rise of “evergreen” funds and family offices, which do not operate with the traditional 5–7 year holding periods of many private equity funds, as well as funds dedicated to minority or non-control investments, are on the rise.

Risk allocation continues to be an overarching trend. We see a lot of firms with great growth stories in recent years, and in a competitive environment, valuations are more frequently based on forward-looking financial projections. The other side of that, though, is those structures typically carry an “at risk” component like an earn out, earn up, equity roll, or other contingencies. These are not necessarily a bad thing for firms who are confident in their forecasts and ability to execute and can provide liquidity today with upside in the future in the right circumstances.

I think we are seeing more and more firms look to technology and IP to improve margins and differentiate. ARCADIS is a great example of a firm pushing the envelope in terms of technology. They recently acquired both E2 ManageTech and SEAMS. E2 provides enterprise technology solutions for the environmental, health and safety information market and SEAMS is a U.K.-based software and analytics firm in the asset management space. I think the most notable part of these deals is their reflection of ARCADIS’ aim of establishing a digital leadership position in the space. I think 10 or 15 years ago AEC firms viewed technology as a way to help them better provide their services, but not necessarily to be services or products in and of themselves, and with opportunities for higher gross margins and recurring revenue, we will see more software and technology deals and applications. I’d also note that IP isn’t limited to just patents. Reusable code, accelerators, and digital templates are all valuable ways firms can enhance their services and improve efficiency.

I think we are heading that way. I think of robotic process automation (“RPA”) as a great example of a technology ripe for use in the environmental space. We talked about RPA in a recent blog post, which describes it as the use of robotic software to automate time-consuming, high-volume, repetitive back-office activities. Examples of these activities include: order and claims processing, data audits and migration, extraction of data from PDFs, generating mass emails, updating databases, creating and delivering invoices, service job entry, etc. RPA is all about reducing labor hours and costs. When I think about typical tasks environmental firms need to do, from filling out NPDES permits to importing lab results into reports to tracking samples and maintaining chains of custody, RPA is tailor-made to help them gain efficiencies here.

Oil and gas continues to be a hot market, but there are a few nuances we’re seeing now that we weren’t when oil prices were north of $100 per barrel. For a while, the mentality among exploration and production (“E&P”) companies was just “get it done yesterday.” Cost was not as much of an issue and they were focused on maximizing production as quickly as possible. With prices stabilizing from a few years of volatility, E&Ps now have a more balanced view on speed and efficiency. They are looking for more cost-effective production methods. We’re seeing environmental firms being asked to look at centralized treatment facilities for produced water, as opposed to mobile treatment units or using disposal wells, as one example. Beyond discrete applications like that though, firms are being asked to take a more holistic view of economics and logistics relative to field development and production. GHD is one firm that is pretty progressive in terms of modeling and economic advisory around E&P, supported by their traditional strengths in engineering and design.

We’re also seeing continued emphasis on midstream infrastructure. The reality is that transportation infrastructure for oil and gas, particularly in hot production areas like the Permian Basin in West Texas, the DJ Basin in Colorado, across Oklahoma, and the Marcellus and Utica Shale Plays in Pennsylvania, Ohio, and West Virginia, the network of gathering systems and midstream lines has a long way to go to get product to market. Firms that can carve a position in the midstream should see both strong and relatively stable market conditions for the foreseeable future.

Neil Churman is a Director at 7 Mile Advisors (7MA) where he leads the firm’s practice in Infrastructure, Industrial, and Energy services, including serving the architecture, engineering, and environmental (AEC) industry. He has more than 10 years of experience working with AEC firms in M&A advisory and corporate development roles. 7 Mile Advisors provides industry-focused Investment Banking & Advisory Services globally, with an emphasis on M&A and private capital transactions. Working at the nexus of the rapidly converging consulting, technology, and AEC sectors, 7MA helps their clients determine the right potential buyers for their businesses, transition ownership, raise capital, grow through acquisitions, and evaluate new markets.

About 7 Mile Advisors
7 Mile Advisors provides Investment Banking & Advisory Services to the Business Services & Technology Industries globally. 7 Mile Advisors advises on M&A and private capital transactions, and provides market assessments and benchmarking. As a close-knit team with a long history together and a laser focus on our target markets, 7 Mile Advisors helps its clients sell companies, raise capital, grow through acquisitions, and evaluate new markets. For more information, including research on the M&A markets, visit

All securities transactions are executed by 7M Securities, LLC, member SIPC/FINRA.

Neil Churman Sits Down With Environmental Business Journal was originally published in 7 Mile Advisors on Medium, where people are continuing the conversation by highlighting and responding to this story.


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