M&A Update | Engineering & Construction H2-2017

H2-2017

ENGINEERING & CONSTRUCTION

M&A UPDATE

PUBLICATION CONTENT PROVIDED BY BAKER TILLY CAPITAL

Engineering and construction industry overview and indicators Baker Tilly Capital, LLC’s engineering and construction M&A update provides an overview of the U.S. engineering and construction sector, including recent performance and M&A trends. In the second half of 2017 (H2-2017), construction spending totaled $648.8 billion, which represented a 12 percent increase from the first half of 2017 (H1-2017) and a 2 percent increase from the same period in 2016. Growth in total construction spending has decelerated since 2015, but remains positive. With the passage of the Tax Cuts and Jobs Act, private capital expenditures could continue to accelerate.

Total construction spending in the U.S. (in millions)

$400,000

$350,000

$337,947

$310,886

$300,000

$250,000

$200,000

$150,000

$100,000

$50,000

$0

Q1-2012

Q2-2012

Q3-2012

Q4-2012

Q1-2013

Q2-2013

Q3-2013

Q4-2013

Q1-2014

Q2-2014

Q3-2014

Q4-2014

Q1-2015

Q2-2015

Q3-2015

Q4-2015

Q1-2016

Q2-2016

Q3-2016

Q4-2016

Q1-2017

Q2-2017

Q3-2017

Q4-2017

Source: U.S. Census Bureau

Growth in public spending remains muted and though current administration plans are conservative they do include increases to infrastructure and defense spending. Since the Great Recession (2007-2009), public spending has declined towards a long run average and private spending has increased substantially. In December of 2017, private construction spending surpassed the 15-year high established pre-recession in February 2006.

Public versus private construction spending in the U.S.

$1,200,000

Private Public

$963,247

$1,000,000

$800,000

$600,000

$400,000

$290,047

$200,000

$0

Jan-2003

Jan-2004

Jan-2005

Jan-2006

Jan-2007

Jan-2008

Jan-2009

Jan-2010

Jan-2011

Jan-2012

Jan-2013

Jan-2014

Jan-2015

Jan-2016

Jan-2017

Source: U.S. Census Bureau

1

The consensus forecast compiled by the American Institute of Architects (AIA) for non-residential construction spending estimates that 2018 and 2019 should see roughly 4 percent growth. The economists polled in AIA’s forecast remain positive about the near term prospects of the U.S. economy citing natural disasters, tax reform, the possibility of an infrastructure package and strong consumer and business confidence levels as proponents for continued growth. Furthermore, monetary policy remains expansionary with the current federal funds rate targeted at 1.25 to 1.50 percent. In 2018, the Federal Open Market Committee (FOMC) expects rates to move closer to 2.1 percent, but cites that timing of interest rate changes are dependent on numerous economic factors, including GDP growth, unemployment rates and inflation rates among others. On an annualized basis, real gross domestic product (GDP) grew 2.3 percent in 2017, which compared to a 1.5 percent increase in 2016, was a significant improvement. Nonresidential fixed investment and exports propelled the growth in the real GDP for the U.S. economy in 2017. Unemployment rates declined from 4.3 percent in July 2017 to 4.1 percent – a 10- year low – in December of 2017, signaling a robust job market. Inflation lagged behind the FOMC’s 2 percent goal at 1.5 percent in 2017, but is expected to rise to the 2 percent peg in 2018. Overall, the U.S. economy appears to be healthy. Select public company metrics Baker Tilly Capital reviewed publicly traded companies in the engineering and construction industry. As of December 31, 2017, the identified comparable public companies (after exclusion of outliers) traded at an average of 11.2x EV/EBITDA and traded between 4.2x and 19.5x EV/EBITDA. Average EV/EBITDA multiples expanded from 10.2x to 11.2x from July 1, 2017 through the end of the year, which equates to a 10.3 percent increase, mirroring the 10.7 percent increase of the S&P 500 during the same time period. The current multiple average of 11.2x marks the engineering and constructions group’s highest average trading multiple since before the Great Recession (2007-2009). Operationally, performance for the peer group was positive during 2017. Average revenue growth for the peer group was 6.21 percent during 2017, while EV/EBITDA growth averaged 1.43 percent. Thirty of 36 firms reported positive EBIT and 27 of 36 firms reported positive net income. Public company valuations for engineering and construction firms can vary considerably depending on the specific service and/or end market the company does business in. Generally, companies we classify as specialty firms lag the other constituents of the peer group in terms of trading multiples and that trend became more pronounced during the H2-2017. During H2-2017, specialty firms averaged 9.9x EV/EBITDA, while the diversified engineering and constructions services and contractor firms averaged 12.7x EV/EBITDA.

Sources: U.S. Census Bureau, American Institute of Architects, Wall Street Journal, Capital IQ, Federal Open Market Committee, Bureau of Labor and Statistics

2

Select comparable public company analysis

Enterprise LTM LTM LTM Gross Profit EBITDA

Enterprise Value / LTM

Total Debt

($ in millions)

Company Name

Ticker

Value Revenue Gross Profit EBITDA Margin Margin Revenue EBITDA EBITDA

Diversified Engineering & Construction Companies

AECOM

9,116 $

18,756 $

$

650 713 653

$

772 250 724

3%

4%

0.5x

11.8x 10.7x

5.1x 3.4x 2.2x 2.7x 3.9x 5.3x 4.8x 2.2x 2.3x 3.5x 3.4x

NYSE:ACM

ARCADIS NV

2,689 6,988

4,020 19,483 27,529 10,222 4,424 6,893 2,742 5,422

18% 6% 0.7x 3% 4% 0.4x 28% 5% 0.4x 18% 6% 0.7x 4% 2% 0.6x 18% 8% 1.4x 54% 11% 1.3x 18% 8% 1.1x 18% 6% 0.8x 18% 6% 0.7x 5% 1% 0.3x 5% 2% 0.3x 10% 5% 0.8x 8% 3% 0.4x 9% 2% 0.3x 9% 5% 0.4x 8% 3% 0.4x 9% 3% 0.4x 21% 13% 1.4x 15% 6% 0.6x 23% 17% 1.1x 11% 9% 1.0x 38% 1% 1.0x 30% 12% 1.0x 18% 2% 0.6x 14% 10% 0.8x 7% 2% 0.4x 16% 13% 0.7x 10% 5% 0.5x 29% 20% 0.9x 9% 3% 0.5x 12% 7% 0.6x 13% 7% 0.7x 8% 4% 0.5x 18% 11% 1.4x 16% 7% 0.8x 14% 7% 0.7x 11% 5% 0.6x 22% 9% 2% (1%) 0.8x 0.4x 1% (4%) 0.2x

ENXTAM:ARCAD

Fluor Corporation

9.6x 9.3x

NYSE:FLR

Hochtief AG (Turner Construction) Jacobs Engineering Group Inc.

12,181 7,473 2,770 9,756 3,681 5,723

7,765 1,845 1,261 1,478 1,002 1,727 1,002 173

1,303

DB:HOT

662

11.3x

NYSE:JEC NYSE:KBR TSX:SNC TSX:STN TSX:WSP

KBR, Inc.

97

NM

SNC-Lavalin Group Inc.

552 292 412 563 552

17.7x 12.6x 13.9x 12.1x 11.6x

Stantec Inc.

WSP Global Inc.

Diversified Engineering & Construction Adjusted Mean 1 Diversified Engineering & Construction Median

6,708 $ 6,988 $

11,055 $

$ $

$ $

$

6,893

Construction Services & Contractors

1,338 $

$

2,370 10,055 1,176 2,855 19,835

$

259 498

$

121

11.1x

5.3x

Aecon Group Inc. Balfour Beatty plc

TSX:ARE LSE:BBY TSX:BDT NYSE:GVA OM:SKA B TSX:SOX NYSE:TPC

3,281

82 20

NM

NM

Bird Construction Inc.

322

59

16.0x 16.8x 16.0x 11.7x 13.3x 13.8x 8.3x

3.0x 1.7x 2.6x 4.3x 3.8x 3.5x 3.4x

Granite Construction Incorporated

2,330 8,848

296

139 554 233 166 121 18

Skanska AB

1,605

Stuart Olson Inc.

206

759

68

1,929

4,811 5,980 2,855

442 461 296

Tutor Perini Corporation

Construction Services & Contractors Adjusted Mean 1 Construction Services & Contractors Median

2,608 $ 1,929 $

$ $

$ $

$ $

Specialty Firms

Aegion Corporation

1,105 $

$

1,343 9,148 3,024 7,624

$

292 166 633

$

123

9.0x

2.9x

NasdaqGS:AEGN

Chicago Bridge & Iron Company N.V.

3,520 4,172 4,742

(114)

NM

NM

NYSE:CBI NYSE:DY NYSE:EME AMEX:GV

Dycom Industries Inc. EMCOR Group Inc.

390 447

10.7x 10.6x

2.0x 0.9x 1.3x 6.2x

1,108

Goldfield Corp.

129 749 420 299 389

116 724 414 289 602

26 81

20 68 35 14 2

6.5x

Great Lakes Dredge & Dock Corporation

11.0x

NasdaqGS:GLDD

Hill International, Inc.

155

NM

NM

NYSE:HIL TSX:IBG

IBI Group Inc.

86

8.5x

2.9x

Layne Christensen Company

110 874 473 138 76

NM

NM

NasdaqGS:LAYN

MasTec, Inc.

5,294

6,346 1,096 2,908 1,374

607

8.7x

2.1x 2.8x 1.4x 1.1x 2.3x 5.2x 1.4x 1.1x 2.6x 2.0x 2.4x 2.0x 2.9x 2.6x NM

NYSE:MTZ

Matrix Service Company McDermott International Inc.

472

18

NM

NasdaqGS:MTRX

2,024

378

5.4x 9.0x 4.6x

NYSE:MDR

MYR Group, Inc.

670 215 298

75 47 15

NasdaqGS:MYRG

North American Energy Partners Inc.

234 561

67 51

NYSE:NOA NYSE:ORN

Orion Marine Group, Inc

19.5x

Primoris Services Corporation

1,496 6,744

2,403 9,091

279

176 677

8.5x

NasdaqGS:PRIM

Quanta Services, Inc.

1,227

10.0x 13.7x 12.5x

NYSE:PWR

Sterling Construction Co. Inc.

467

872

73

34

NasdaqGS:STRL NasdaqGS:TTEK

Tetra Tech, Inc. Willbros Group Inc.

2,850

2,089

366

229

159

797

12

(32)

NM

NYSE:WG

Specialty Firms Adjusted Mean 1 Specialty Firms Median

1,811 $

$ $ $ $

2,553 1,220 5,345 2,742

$ $

315 146 696 296

$

160

9.9x 9.0x

$

709

$

58

3,190 $ 2,024 $

$ $

$ $

262 139

15% 6% 13% 5%

0.7x 0.6x

11.2x 10.7x

Total E&C Industry Adjusted Mean 1

Total E&C Industry Median

Source: Capital IQ (December 31, 2017) 1 Adjusted mean removes any outliers that skew the data

3

Average historical trading multiples

10.0x 11.0x 12.0x 13.0x 14.0x

Diversified Engineering and Construction

Construction Services & Contractors

Specialty Firms

13.3x

12.1x

9.9x

4.0x 5.0x 6.0x 7.0x 8.0x 9.0x

Mar JuneSept Dec Mar JuneSept Dec Mar JuneSept Dec Mar JuneSept Dec Mar JuneSept Dec Mar JuneSept Dec Mar JuneSept Dec Mar June Sep Dec 2010 2011 2012 2013 2014 2015 2016 2017

Note: Multiples are based on average enterprise values for each quarterly period and certain outliers were removed from the analysis

Select H2-2017 transactions The selected transactions with numerical data below are from companies in the engineering and construction industry that occurred during the H2-2017. The industry has seen relatively consistent acquisition activity over the past two years despite a relatively inactive H1-2017. Publicly available valuation details are limited, however the following deals included trading multiple data, though some of the deals mentioned are outside of the middle market. During October 2017, Lennar Corporation announced the acquisition of CalAtlantic Group, Inc. from MatlinPatterson Global Advisors, marking one of the biggest transactions within the homebuilding industry in years. The transaction is scheduled to close in February of 2018. John Wood Group PLC closed on the acquisition of Amec Foster Wheeler PLC during the H2-2017, bringing two companies with distinct and complementary services together and creating a global force within the construction services industry. The acquisition was proposed to be accretive to earnings. Another notable deal announced, but not yet closed, was the acquisition of Aecon Group Inc. by CCCC International Holding Limited. The deal is expected to close by the end of the first quarter in 2018. Aecon Group is currently, and Amec Foster Wheeler was previously, a counterpart to this report.

Recent comparable transactions

Comparable Transactions with Numerical Data 7/1/2017-12/31/2017 ($ in millions) Date Target Company Acquiring Company

Implied EV EV / Revenue

EV / EBITDA

12/04/17 NAPEC Inc. (TSX:NPC) 2 10/30/17 CalAtlantic Group, Inc. 2 10/26/17 Aecon Group Inc. (TSX:ARE) 2 10/06/17 Amec Foster Wheeler plc

Oaktree Capital Management, L.P. Lennar Corporation (NYSE:LEN)

$258.86

0.7x 1.5x 0.5x 0.6x 1.4x

9.7x

$9,963.79

13.4x

CCCC International Holding Limited $1,613.98

9.8x

John Wood Group PLC (LSE:WG.)

$3,297.89

10.6x 10.7x

07/06/17 Distinct Infrastructure Group Inc. (TSXV:DUG)

-

$1.08

Total $15,135.60

-

-

Mean

$3,027.12 $1,613.98

0.9x 0.7x

10.8x 10.6x

Median

Sources: Capital IQ, public news sources and Baker Tilly Capital, LLC research (December 31, 2017) 2 Announced transactions

4

Other select closed transactions: H2-2017

Date

Target Company

Acquiring Company

Total Transaction Value

12/29/17 Blind Ambitions LLC and Allpro Insulation Co

Installed Building Products, Inc. (NYSE:IBP) Vicapsys Life Sciences, Inc. (OTCPK:VICP)

- -

12/26/17 SSGI, Inc.

12/25/17 Westinghouse Electric Company LLC 12/15/17 CH2M HILL Companies, Ltd.

Toshiba Corporation (TSE:6502)

$522.0

Jacobs Engineering Group Inc. (NYSE:JEC)

$3,375.5

12/14/17 Legat Kingscott, LLC

Legat Architects, Inc.

- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

12/13/17 Atlanta Homebuilding Operations of Home South Communities LLC CalAtlantic Group, Inc.

12/11/17 Royal Oaks Building Group, LLC

Mattamy Group Corporation

12/06/17 Woolpert, Inc. 12/04/17 Larssen Ltd 11/30/17 CBI Consulting LLC 11/30/17 Stouten Cramer, Inc.

Long Point Capital

Aurora Cannabis Inc. (TSX:ACB)

$13.5

IBA Holdings, LLC

King Engineering Associates, Inc. H2M Architects and Engineers

11/10/17 Schommer Engineering, Inc. 11/09/17 PBA Architects, P.A. 11/02/17 Primary Integration, LLC 10/31/17 Sundquist Homes, LLC 10/30/17 Heery International, Inc. 10/19/17 LandBros Aerial Photography, LLC 10/10/17 Moser Mayer Phoenix Associates, PA 10/03/17 Brothers' Fence Company Inc. 10/02/17 Raymond J. Donnelly & Associates, Inc. 09/25/17 National Development Corporation 09/11/17 SarPoint Engineering Ltd. 09/06/17 John R. Wald Company, Inc. 09/01/17 Leggette, Brashears & Graham, Inc. 10/11/17 Andregg Geomatics, Inc.

Gibson, Mancini, Carmichael & Nelson P.A. Bureau Veritas SA (ENXTPA:BVI) Century Communities, Inc. (NYSE:CCS)

$51.5 $55.1

CBRE Group, Inc. (NYSE:CBG) Premium Inspection & Testing, Inc.

Psomas

Clark Patterson Engineers, Surveyor and Architects P.C.

Split Rail Fence & Supply Co. Spalding DeDecker Associates, Inc.

Beacon Communities LLC

09/20/17 MC Endeavors, Inc., Prior to Reverse Merger with Room 21 Media Inc. MC Endeavors, Inc. (OTCPK:MSMY)

McElhanney Land Surveys Ltd.

Hills Numberplates Ltd.

WSP Global Inc. (TSX:WSP) Gilbane Building Company, Inc.

08/30/17 Keating Consulting, LLC 08/29/17 Community Asphalt Corp.

Obrascón Huarte Lain, S.A. (BME:OHL) Designer Group Engineering Contractors Limited

08/23/17 PPS Group LLC

08/07/17 NuVision Engineering, Inc.

Carr's Group plc (LSE:CARR)

$20.0

08/04/17 W.H. Hobbs Inc.

Andrew Roby, Inc. LJA Engineering, Inc.

08/02/17 Precision Aerial Compliance Solutions, LLC

07/31/17 Alpha Energy, Inc.

Southwest Business Services, LLC; Black Rock Oil And Gas, LLC; Croci Land Holdings, LLC; Arrow Consulting LLP; AG Management Associates; CBK Management Associates

07/31/17 David A. Mann Land Surveyor

Dubois & King, Inc. Warburg Pincus LLC KCI Technologies Inc. AECOM (NYSE:ACM)

07/31/17 Service Logic, LLC

07/31/17 LandAir Surveying Company of Georgia, Inc. 07/28/17 Shimmick Construction Company, Inc.

$175.0

07/18/17 EJM Engineering, Inc.

TranSmart Technologies Inc

07/12/17 McClure Engineering Associates, Inc.

KJWW Engineering Consultants, P.C.

07/11/17 Casteel Heating and Cooling, Inc. and Gold Medal Service

Horizon Services, Inc.

07/10/17 Ghyabi + Associates, Inc. 07/07/17 Harris Doyle Homes, Inc. 07/06/17 Halmar International, LLC

Alfred Benesch & Company, Inc.

Clayton Properties Itinera Usa Corp.

$60.0

07/06/17 5 Bars, LLC

Neutral Connect Networks LLC

07/03/17 Oakwood Homes LLC

Clayton Properties

07/03/17 CKGP/PW & Associates, Inc.

EDAG Engineering Group AG (DB:ED4)

Sources: Capital IQ, public news sources and Baker Tilly Capital, LLC research (December 31, 2017)

5

Number and aggregate enterprise value of engineering and construction deals with reported values (where EV < $1 billion) – United States and Canada

Sources: Capital IQ and Baker Tilly Capital, LLC insights (December 31, 2017)

6

All information and analysis in this report is provided by Baker Tilly Capital, LLC, which provides investment banking services before, during, and after a sell-side or buy-side transaction. Baker Tilly Capital, member FINRA and SIPC, is a wholly- owned subsidiary of Baker Tilly Virchow Krause, LLP. RubinBrown and Baker Tilly Virchow Krause are independent members of Baker Tilly International, the world’s ninth largest network of accountancy and business advisory firms.

PRIVATE EQUITY SERVICES LEADERS

Jeff Sackman, CPA, CGMA Partner & Vice Chair Private Equity Services Group 314.290.3406 jeff.sackman@rubinbrown.com Ken Van Bree, CPA, CGMA Partner-In-Charge Construction Services Group 314.290.3429 ken.van.bree@rubinbrown.com Ben Barnes, CPA, CGMA Partner-In-Charge Private Equity Services Group 314.678.3531 ben.barnes@rubinbrown.com

Tim Farquhar, CFA, CPA Partner Private Equity Services Group 314.290.3281 tim.farquhar@rubinbrown.com Jeff Barnes, CFA Manager Private Equity Services Group 314.290.3276 jeff.barnes@rubinbrown.com

RubinBrown.com

1.800.678.3134

RubinBrown LLP

@RubinBrown

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