ACEC Texas One-Day MBA. Presented by Mike Cauley Principal Consultant / Advisor Morrissey Goodale LLC Mergers & Acquisitions (M&A) Takeaway The story.

ACEC Texas

One-Day MBA

Presented by

Mike Cauley

Principal Consultant / Advisor

Morrissey Goodale LLC

Mergers & Acquisitions (M&A) TakeawayThe story of consolidation in the engineering

consulting industry

A little about myself…

Education

General experience and specialty/focus

Experience in “The Built Environment”

Mergers and Acquisitions experience

Outline for Today

1.Establish the M&A marketplace

2.Why you should care about the M&A marketplace

3.Perspectives from the front lines

4.What you should be doing today and beyond

Establish the M&A marketplace

Historical global M&A activity

Historical global M&A activity2011 Sales by Country

United States 175Canada 36United Kingdom 28Australia 21India 8South Africa, Sweden 7Netherlands 5Norway, Singapore 4Brazil, France, Chile 3Germany, Colombia, Finland, Saudi Arabia, Denmark, Poland, Russia 2

2012 Sales by Country (Through 10/31)

United States 152Canada 28United Kingdom 21Australia 12Brazil 8South Africa 5China, Netherlands 4Germany, France, Norway, Sweden, Colombia 3Chile, Finalnd, Peru, Saudi Arabia, Turkey 2

Historical domestic M&A activity

2011-2012 domestic selling M&A activity

2011-2012 domestic buying M&A activity

Historical Texas M&A activity

Firm Sales from Texas 2007 2008 2009 2010 2011 2012 Cumulative

Texas Sales 11 18 15 11 15 15 85Total Domestic Sales 175 180 150 152 175 152 984Texas Sales as % of Total Domestic Sales 6.3% 10.0% 10.0% 7.2% 8.6% 9.9% 8.6%

Transactions Originating from Texas 2007 2008 2009 2010 2011 2012 Cumulative

Texas Originated 5 15 5 8 12 12 57Total Domestic Originated 160 178 139 136 175 160 948Texas Originated as % of Total Domestic Originated 3.1% 8.4% 3.6% 5.9% 6.9% 7.5% 6.0%

Historical domestic M&A activity

Historical inter-country M&A activity

The M&A Market Highlights

1.Heightened activity both domestically and globally2.Texas contributes heavily to the domestic M&A market3.The U.S. is not as attractive to overseas buyers4.The level of in-state deal making is up relative to years past but still not surpassing the amount of growth-focused interstate transactions5.As the economy turns around, the M&A market will continue to expand

Why should you care about the M&A market?

Consolidation

13 The Shaw Group to CB&I 112 Halcrow to CH2M Hill 238 EYM Mission Critical Facilities to HP16 Earth Tech to AECOM 114 HSSM to AECOM 250 EN Engineering to CIVC Partners24 VECO to CH2MHill 118 CUH2A to HDR 258 Florence & Hutcheson to Infrastructure Corp.28 PBSJ to WS Atkins 125 LFR to Arcadis 267 Chong Partners to Stantec32 MACTEC to AMEC 128 Jordan Jones & Goulding to Jacobs 327 Fuller, Mossbarger Scott & May to Stantec36 Carter Burgess to Jacobs 132 Vollmer to Stantec 335 KKE Architects to DLR Group36 Washington Group to URS 145 Wilson Miller to Stantec 351 Bohannan Huston to Woolpert39 Malcolm Pirnie to Arcadis 148 STS Consultants to AECOM 366 Chas H. Sells to WSP Group47 BE&K to KBR 152 The LPA Group to Michael Baker Corp 394 R.D. Zande & Associates to Stantec52 Bureau Veritas to Vertical V 156 EYP to Long Point Capital 394 Bury+Partners to Bowman Consulting61 RTKL to Arcadis 157 Teng Associates to Trow Global Holdings 401 Bucher, Willis & Ratliff to H.W. Lochner64 Wilbur Smith to CDM 159 TBE Group to Cardno 418 BP Barber to URS66 EDAW to AECOM 163 L. Robert Kimball to CDI Corp 432 Patton Harris Rust & Associates to Pennoni67 Edwards & Kelcey to Jacobs 164 Hillier Architecture to RMJM 437 ABMB Engineers to Stantec68 ATC Associates to Cardno 169 Anshen+Allen Architects to Stantec 453 Medina Consulants to T.Y. Lin85 Burt Hill to Stantec 179 Otak to HanmiGlobal 474 ENTRAN to Stantec102 The Benham Companies to SAIC 183 Jones & Stokes to ICF International 485 ECO:LOGIC Engineering to Stantec104 RBF Consulting to Michael Baker 197 Bonestroo to Stantec 496 Nodarse & Associates to Terracon108 Boyle Engineering to AECOM 204 Winzler & Kelly to GHD111 Syska Hennessy Group to GKK Works 211 Nolte Associates to Vertical V111 KlingStubbins to Jacobs 227 RMT to TRC

Note: 2011 and 2012 transactions appear in bold font.

Consolidation of the ENR 500 in Recent Years (Deals involving ENR 500 Firms Being Sold, along with their ENR ranking at time of sale)

2011-2012 Texas M&A activity2011-2012 Buyer Texas Seller

1 Parkhill, Smith & Cooper (TX) WD Architects2 Sterling Engineering and Design Group (TX) Alliance Structural Engineers 3 Sterling Engineering and Design Group (TX) CBM Engineers4 TRC (MA) Alexander Utility Engineering, Inc.5 IBI Group Inc (Canada) Bay Architects6 Total Safety (TX) Webb, Murray & Associates, Inc.,7 Freese & Nichols, Inc. (TX) Nicol & Associates, Inc.8 Fugro (Netherlands) AOA Geophysics9 Burrow Global Solutions (TX) Arceneaux & Gates Consulting Engineers, Inc.:10 CivilCorp (TX) Associated Engineers & Surveyors 11 Apex Companies (MD) Titan Engineering, Inc.12 Warburg Pincus (NY) Total Safety13 RPS Group (UK) Espey Consultants 14 Bleyl & Associates (TX) Vincent Gerard & Associates 15 Gryphon Investors (CA) Trinity Consultants16 Kleinfelder (CA) Corrigan Consulting 17 Parkhill, Smith & Cooper (TX) Tittle Luther Partnership (TLP) 18 Spalding DeDecker Associates (MI) Coyle Engineering 19 LJA Engineering (TX) LEAP Engineering, Inc.20 Walter P Moore (TX) Dodson & Associates21 McKim & Creed (NC) SURVCON22 Bureau Veritas (France) T H Hill23 O’Connell Robertson (TX) Mitchell Design Consultancy (MDC)24 Corinthian Capital (NY) Hamilton Group25 New Tech Global (TX) Carr Environmental Group (CEG)26 HPD Architecture (TX) HPD Design for Living27 Wood Group (Scotland) Duval28 Civil Engineering Consultants (TX) Kling Engineering and Surveying29 KCI Technologies (MD) ESPA CORP30 Professional Service Industries (IL) Hi-Tech Testing

50-percent of buyers are from Texas.37-percent of buyers are from non-Texas states.13-percent of buyers are international-based.

2011-2012 Texas M&A activity2011-2012 Texas Buyer Seller

1 KBR M.W. Kellogg Limited (UK)2 Parkhill, Smith & Cooper WD Architects (TX)3 Total Safety Pacific Environmental Consulting (Canada)4 Sterling Engineering and Design Group Alliance Structural Engineers (TX)5 Sterling Engineering and Design Group CBM Engineers (TX)6 Total Safety Webb, Murray & Associates (TX)7 Freese & Nichols, Inc. Nicol & Associates (TX)8 Burrow Global Solutions Arceneaux & Gates Consulting Engineers (TX)9 CivilCorp, LLC Associated Engineers & Surveyors (TX)10 HKS Maregatti Interiors (IN)11 HKS Earl Walls Consultancy (CA)12 Bleyl & Associates Vincent Gerard & Associates (TX)13 Parkhill, Smith & Cooper Tittle Luther Partnership (TX)14 LJA Engineering LEAP Engineering (TX)15 Walter P Moore Dodson & Associates (TX)16 KSA Engineers Alliance (LA)17 Hitachi Consulting PRIZIM (MD)18 O’Connell Robertson Mitchell Design Consultancy (TX)19 CB&I The Shaw Group (LA)20 New Tech Global (NTG) Carr Environmental Group (TX)21 HPD Architecture HPD Design for Living (TX)22 5G Studio Collaborative DVA Architecture (GA)23 Civil Engineering Consultants Kling Engineering and Surveying (TX)24 Huitt-Zollars Coon Engineering (OK)

63-percent involve Texas sellers.29-percent involve non-Texas domestic sellers.8-percent involve international sellers.

Why should you care about M&A?

1.Heightens your competition.

2.Can be used to drive shareholder value by adding smart geographic coverage, service lines and/or end markets/clients; increasing market share; increasing scale; and/or yielding cost efficiencies and synergies.

3.Provides an alternative to organic growth.

4.Can be used to satisfy numerous objectives that firm owners contemplating selling may have.

Perspectives from the front line

Technical ServicesGENERAL / BUILDING SERVICES CIVIL ENGINEERING POWER AND ENERGY DESIGN

Architecture Site development Fossil fuels development /extractionLandscape architecture Drainage and stormwater Fossil fuels process engineering

Land and urban planning Hydraulic structures (e.g., dams, levees, locks) Fossil fuels transmission and distributionInterior design Water resources Renewables development

Construction management Water treatment Renewables process engineeringConstruction (GC) Water distribution Renewables transmission and distribution

Mechanical Wastewater collection

Electrical Wastewater treatment OTHERPlumbing Solid waste Forensic engineeringStructural Telecommunications and mission critical

Surveying ENVIRONMENTAL SERVICES Grant and financial resources assistanceGeospatial / mapping Studies and permitting

Geotechnical Remediation and investigationFire protection Solid waste and hazardous waste

Energy efficiency / sustainability Regulatory complianceEnvironmental sciences

TRANSPORTATION SERVICES EcologyRoad design Air quality

Bridge design and/or inspection Industrial hygiene Traffic engineering and analysis

Transit and rail designPorts and shipping / marine design

Aviation infrastructure design

Market Sectors / End Clients

COMMERCIAL REAL ESTATE TRANSPORTATION-RELATED POWER AND ENERGYOffice Federal PetroleumRetail State/DOT Coal

Industrial/warehousing/manufacturing County Natural gasHotels/hospitality Local Nuclear

Entertainment/recreation Aviation authorities WindMarine and port authorities Solar

RESIDENTIAL REAL ESTATE BiomassSingle-family WATER, WASTEWATER & ENV'T GeothermalMulti-family Federal / ACOE Hydropower

StateEDUCATION County OTHER

K-12 Local Religious / CulturalHigher education Private Telecommunications and mission critical

Criminal JusticeINSTITUTIONAL PRIVATE INDUSTRY

Healthcare Mining and aggregateBiotechnology and life sciences Solid waste

Senior Living

Domestic RegionsWEST REGION MIDWEST SOUTH REGION NORTHEAST REGION

PACIFIC DIVISION WEST NORTH CENTRAL DIVISION WEST SOUTH CENTRAL DIVISION MIDDLE ATLANTIC DIVISIONHawaii North Dakota Oklahoma New YorkAlaska South Dakota Texas Pennsylvania

Washington Nebraska Arkansas New JerseyOregon Kansas Louisiana

California Minnesota NEW ENGLAND DIVISIONIowa EAST SOUTH CENTRAL DIVISION Maine

MOUNTAIN DIVISION Missouri Kentucky VermontMontana Tennessee New Hampshire

Idaho EAST NORTH CENTRAL DIVISION Mississippi MassachusettsWyoming Wisconsin Alabama Rhode Island

Nevda Illinois ConnecticutUtah Indiana SOUTH ATLANTIC DIVISION

Colorado Michigan West VirginiaArizona Ohio Maryland

New Mexico DelawareWashington, DC

VirginiaNorth CarolinaSouth Carolina

GeorgiaFlorida

Deal PricingPricing Multiplies Lower Quartile Median Upper Quartile

Per Gross Revenue 0.39 0.57 0.68Per Net Revenue 0.53 0.67 0.93Per Employee $71,103 $95,000 $156,923Per EBITDA 4.99 6.03 7.24Per PTPB 4.17 5.35 7.16Per Book Value 1.67 2.10 4.20Per Backlog 0.38 0.63 0.81

Notes(1) Based on a combination of actual and extrapolated/estimated target f irms' f inancials from

recently completed (or contemplated/offered) transactions.

(2) Completed (or contemplated/offered) transactions have occurred over the past 24 months.

(3) Firms involved in the transactions include AEC and environmental consulting f irms and are

both publicly- and privately-held.

(4) Largest acquirer/potential acquirer w as approximately $5B Gross Revenue.

(5) Smallest seller/potential seller w as approximately $1.8M Gross Revenue ($1.4M Net Revenue).

(5) Median-sized seller w as approximately $16M Gross Revenue ($12M Net Revenue).

Deal Pricing (illustrated)

Sample FirmFirm

PerformanceLower Quartile

Price Median PricingUpper Quartile

Pricing

Gross Revenue $12,000,000 $4,648,937 $6,840,000 $8,175,182Net Revenue $10,000,000 $5,294,917 $6,740,038 $9,277,678Employees 83 $5,925,265 $7,916,667 $13,076,923EBITDA $1,000,000 $4,987,789 $6,030,349 $7,242,356PTPB $800,000 $3,338,615 $4,278,075 $5,727,502Book Value $2,000,000 $3,332,700 $4,208,465 $8,391,021Backlog $8,000,000 $3,053,374 $5,042,076 $6,490,378

Low End $3,053,374 $4,208,465 $5,727,502Median $4,648,937 $6,030,349 $8,175,182

High End $5,925,265 $7,916,667 $13,076,923

Additional buyer perspectives

1.All things energy and environment…and healthcare, biotechnology and life sciences2.What have you done for me lately?3.The “umbrella” effect4.Organic growth challenges5.Going to the coasts, Texas and all things Sun Belt in between6.Canada, Australia and emerging markets

Additional seller perspectives

1.Caught in the middle2.Traditional ownership transition and capitalization models are being challenged3.Looking to liquidate investments4.Looking for a smart way to backup resources5.Doing right by my staff…for the long-term

What should you be doing moving forward?

Being a “Ready” Seller

1.Understand what selling would mean for you and your firm and understand everyone’s goals.2.Understand your market position.3.Have the answers ready before they are even asked. 4.Do not lose focus on your business.5.If it is not right…

Being a “Ready” Buyer

1.Prioritize your sought after services, markets and regions.2.Understand the financial implications of doing a deal.3.Develop an understanding of the options available to you.4.Be ready to act fast.5.What’s your story?6.Know what you are looking for to verify and develop a list of deal breakers.7.If it is not right…

Mike CauleyPrincipal Consultant / Advisor

Morrissey Goodale LLC

[email protected]

480.323.5083

Questions?