The infrastructure that supports the US economy and especially its urban centers is aging and, in some cases, crumbling. Roads, bridges, rail, transit, water and natural gas infrastructure in the US have consistently received low marks compared to other developed and rapidly developing countries. Given the population growth in cities, and the increasing importance of our nation’s infrastructure to the economy, even The Infrastructure Investment and Jobs Act (IIJA) will likely fall significantly short of funding needs. With inflation concerns growing, additional spending in the near to medium term is unlikely.
The increased level of complex systems will require significantly more, and different types of, maintenance than older less sophisticated infrastructure. However, these technologies promise a potentially more efficient and safer future, as smart infrastructure and smart cities lead to lower lifecycle costs and reduce accidents that lead to lost life and disruption of critical infrastructure. New business models are being developed as energy service companies (ESCOs) gain market share compared to traditional mechanical and electrical construction services. The increased focus on decarbonization will also see an increase in spending in infrastructure to support the energy transition, increased renewable energy generation, and electrification.
Capital projects are increasingly complex and larger in scope, with many projects facing significant cost overruns and schedule delays. To manage these challenges offsite construction including prefabrication, modularization, and pre-assembly are frequently being utilized to deliver projects faster, safer and more cost effectively. These trends have led to a trend towards larger, more vertically integrated infrastructure service companies with sophisticated supply chains, balance sheets and project management capabilities to execute contracts.
Despite the changes facing the infrastructure services industry, investment has grown across a number of segments and M&A activity has been robust, both from institutional and strategic buyers. Company and financial sponsor interest in the industry will only continue to increase due to the increased funding that will stem from The Infrastructure Investment and Jobs Act. Buyers from both emerging and developed markets continue to look to the US for expansion and expertise. Demographic succession driven opportunities should increase throughout the industry due to baby-boomer retirements, which, coupled with heightened buyer interest should continue to encourage a healthy M&A market.
Given the rapidly changing landscape in the infrastructure services industry, management teams and owners need to understand their position in the market, develop and execute a clear well thought out strategy, and focus on remaining profitable and competitive through technology.