[00:00:00] Speaker A: Five editions, 104 years.
Same two names on the COVID Leonard Metcalfe and Harrison Eddy founded their firm in Boston in 1907 to study how American cities were poisoning their own water supplies. In 1914, they wrote the three volume manual on sewer design and sewage disposal. In 1922, they condensed it into a textbook for students.
By 2000, the firm carrying their names had already passed through the hands of Vivendi, the French water conglomerate. And this is before Vivendi sold it to AECOM. Last year, AECOM brought in over $16 billion in revenues.
The book on sewage is just a rounding error inside somebody else's portfolio.
I am Rhys Tisdall and this is is Future of Water in which we talk about all the ways which companies, utilities and people are addressing the challenges and opportunities in water. This is episode 151. You know what that means?
150. The special episode was a couple weeks ago, so it's worth listening to that if you haven't where I was interviewed by Swap Neel Gandhi. But as far as 151 goes, I have a pretty good feeling it's going to be a good one. That's because today I'm joined by my colleague Caroline Bouclaine. Just wrapped up a deep dive into engineering and construction firms.
Forty companies, their water sector market share, their focus, their M and A strategies, and all the interesting details about them.
Here's one thing that jumped out before we even started recording. Water is actually a minority of the revenue for almost every one of these companies. Somewhere between 15 and 23%, except for two. And yet they're still pouring money into acquisitions, AI and geographic expansion to compete for it.
So today's thesis is pretty simple. These firms aren't even just building out water infrastructure anymore.
They're positioning themselves to control the decisions behind it. That shift matters more than probably any single project that they win.
So let's get into it with Caroline Bouclein and talk a little bit about engineering and construction firms and how they're going about it.
All right, so I'm joined here by Caroline Bouclein. Caroline, what's going on? Eagles fan, huh?
[00:02:37] Speaker B: Yes. Yep.
[00:02:39] Speaker A: It's a little tough being in Boston for anybody in Boston, but, you know, we'll see what happens.
So thanks for getting on to the podcast. You've been on these before. You've been on several now.
[00:02:53] Speaker B: Just one before.
[00:02:54] Speaker A: One before. I think we talked about M and A, right? Is that or top companies talked about
[00:03:00] Speaker B: the Water Treatment Chemicals report.
[00:03:02] Speaker A: Oh, there you go. For all the Listeners out there.
Caroline was on a podcast where we talked about the chemical industry, chemical manufacturers, and I think it might be our number one episode.
If it's not number one as far as downloads and lessons, it might be. It's definitely in the top three.
So kudos to you. And I think I said M and A and top companies because that's one of your key areas of focus. But that's not what we're going to talk about today. We're going to talk about engineering and construction firms.
So you've recently put out a report looking at about 40 engineering and construction firms and their strategies, where they are, what their doing. So hopefully you can shed light on a number of different parts of that and give us some details. So let's just jump right into it.
What has made the engineering and construction firms an interesting topic to you, Caroline? And so why have we looked at them so closely?
[00:04:02] Speaker B: Yeah, so this is a report Bluefield has done before. I think it's our second or third update to it, in large part because of how influential they are in the water sector. We've described them before as quote, unquote, gatekeepers because of how they influence capital planning decisions and technology selection or procurement and all of those things. And because of their role, I think that knowing where engineering and construction firms are going and what they're focusing on seems like a really good indicator of where sector as a whole is going. And then I think recently there have been a couple bigger deals that have stood out to us. I'm thinking about WSP's acquisition of TRC and Jacob's acquisition of the remaining stake in PA Consulting that have brought some kind of emerging themes to the forefront. I guess the expansion of AI capabilities and how firms are trying to move further upstream into program management is super interesting and we want to be able to highlight those.
[00:05:02] Speaker A: Yeah, I think your point about being gatekeepers is really critical. Right. These are the people that are designing the systems, they're sort of procuring, they're doing the procurement in a lot of cases, program management and then in case of the construction companies doing exactly that, construction. So when you looked at these 40 different companies broken out into two groups, like we said, engineering and construction, what was the most surprising thing that jumped out at you when you looked at the all these profiles side by side?
[00:05:35] Speaker B: I think it was one thing with the engineering design firms that jumped out to me pretty quickly was how they're talking about AI and how consistently they're talking about AI. We've talked internally about the risks that AI adoption poses to these firms that it might reduce their number of billable hours, they might see pushback on their rates from some of their clients. So I was surprised to see how prominently they're pushing it and all of their materials and how they're talking about it.
It's very clear they're trying to get out ahead of was also super surprising to me. The wide variety of strategies that they're leveraging, whether it was acquisitions or partnerships or investments. I was just kind of overall surprised at the magnitude of that.
One of the largest and most clearest ones is AECOM's $300 million investment in Kinsigli. But Arcadis also just recently announced an investment in an AI company called Nomic.
So there's definitely a lot happening there, which surprised me.
[00:06:39] Speaker A: Yeah, it is one of the big questions that we are getting from our engineering clients as far as topics. And I was actually at the Valve Manufacturers association meetings in Quebec earlier this week and there was a wordle that went around. There were some roundtables and discussions and they brought together. So the rankings, or at least by survey is a better way to put it, the number one topic for them was also AI. I think there's just a lot of not only uncertainty, but I think also to your point about this M and A, that the engineering companies see this also as an opportunity as well, but it is influencing or will influence how they operate.
So when we looked at these companies, this is a global list and it seems like water, it's a minority, it's a smaller share of the revenues for almost every firm, with few exceptions. Who stands out in the positioning as far as revenues go? And what are you seeing across engineering and construction?
[00:07:44] Speaker B: Yeah, in terms of volume of water related revenues, there's a few clear leaders. Some of the names I've already mentioned so far, Aecom, Jacobs, wsp, Tetra Tech and then Vinci for construction firms are pretty clear leaders in that respect. And for all of those firms, Tetra Tech being sort of the exception, water's less than 30% of their revenues. Water is still a strategic focus, but maybe not necessarily the primary one. So they're really winning on just their broad scale there. And then in terms of who's more focusing on water, there's relatively few water pure plays or specialists. At the scale of the firms that we covered in this report, the list of pure plays is pretty much Carollo and Hazen and Sawyer for engineering design firms and Garney for construction firms.
There's a couple others that water makes up a Strong majority for I guess Brown and Caldwell, Friesen Nichols, CDM Smith and MWH constructors for construction firms. But it's definitely not the majority of the firms that we've covered in this report.
[00:08:55] Speaker A: Yeah, I think it's interesting to also look at the pure plays. Right. They're the specialists, they're the brand name specialists. You mentioned Carollo and Hazen. This is what they do. They understand it and sometimes they're operating as subscribers to these larger, larger firms. So we do see some of that.
But it's also interesting, I mean within the group you see these Spanish engineering companies and I don't you one could argue that they're even more vertically integrated just on their global business models.
And to see companies like Axiona or Grupo Cox or fcc, they've got their water specialty, their engineering design, but they're also doing construction. In some cases they are construction companies. That's at their core and their roots. And then in some cases they're owning assets, whether it be diesel positions or other positions around the world. So I think that's super interesting and hopefully I didn't jump the gun on you, but how do these companies, how are they actually growing or. And does it differ by region and what they're doing?
[00:10:01] Speaker B: Yeah, so you mentioned one of those big differences by region being how vertically integrated they are. Some of those Spanish firms being the exception in terms of being vertically integrated. We've seen a lot of the other players move to be more specialized, whether that's engineering firms divesting their construction units or construction firms kind of doubling down on that core business.
But I guess as a whole, across these 40 firms, we've seen the pace of acquisitions kind of steadily ticking up. There was broadly a big peak in 2021 and then a dip after that, but steadily climbing. And in 2026, we've seen a lot of these major firms making acquisitions. And I think it does differ a bit by region. Some of the more US focused firms in here more likely to be growing organically and whether that's opening new branches in kind of adjacent geographic markets or their existing high growth markets or going after different kinds of projects. But I guess we're seeing sort of consistently across the board that M and A pace picking up.
[00:11:18] Speaker A: Yeah, I assume it's a, you know, it's a local relationship driven business. Therefore M and A is one approach to that.
Or if you want to add to your portfolio of solutions like AI.
I think you mentioned some deals earlier, that being a good example. So as far as the globally Diversified versus domestic split. Does it tell us who wins or doesn't does it make a difference if you're a global player or domestic player?
[00:11:49] Speaker B: I think you were kind of getting at this before talking about the relationships idea. That's what really comes to mind for me here. We see a pretty strong correlation between those that are water focused and those that are more domestically focused. Pretty much all of our water pure plays that we've covered in this report are primarily focused on their own domestic market. So I think that does really highlight that it's those local long term relationships that are winning contracts in, in the water sector specifically. And then the idea with those geographic acquisitions, that being one of the big categories of acquisitions that we're seeing, is buying into those local relationships.
[00:12:35] Speaker A: So when you look at the M and A though, what does it tell us where they're heading? Right. Does that give us of what's happening in the market overall?
[00:12:47] Speaker B: Yeah, I think we're seeing two really distinct trends here. The first one, one I've kind of touched on a little bit, the geographic expansion and then acquiring new capabilities. So I'll touch on each one of those because I think they each tell us something.
In terms of geographic expansion, we're seeing a couple markets where there's an uptick in recent activity from some of these more global players, like in Australia, New Zealand and some markets in Europe like the UK and the Nordics. We've seen more of these firms going after acquisitions in those regions, trying to capitalize on some of the growth there.
And then what stands out to me in terms of adding capabilities is that firms are moving further upstream and using acquisitions to do so.
So one that really stands out was Jacob's acquisition of PA Consulting. Of the remaining stake, that was $1.6 billion. And PA Consulting is primarily focused on program management and capital planning. And we're kind of already seeing that move work out to Jacob's benefit. They've recently won some pretty significant contracts in the UK with some of the larger utilities there even since the acquisition that are related to AMP8 and program rollout there. So that's definitely an interesting move and I think will continue to play out.
[00:14:21] Speaker A: Then we also see a company like wsp, they've been seemingly really aggressive, at least in making announcements and or making deals. Right. Am I correct in saying that?
[00:14:33] Speaker B: Yeah. They've over the years approached several of their peers at the top to acquire. I think historically have approached AECOM and Jacobs both and then most recently approaching Arcadis.
[00:14:47] Speaker A: Yeah, so those are three of the leading players. Several of the leading players. So there's no doubt, you know, Canadian company pushing into North America, but then also making some acquisitions in Europe and elsewhere, trying to sort of. It'll be interesting to see what else they have in their back pocket as far as M and A goes. Well, Caroline, I mean, as far as the report overall, anything else we missed, anything else that jumps out at you that's worth sharing for the, for the listeners out there?
[00:15:17] Speaker B: I think just to put another spotlight on the construction firms, one the trends we haven't talked about yet is this move towards alternative delivery methods. Whether that's progressive design build, construction manager at risk we're seeing and other methods as well. We're seeing these construction firms move even further into those new methods as a source of growth.
There are a couple firms that kind of lead already in those types of contracts, Garni being the, the large stand out there. They're the leader in terms of number of contracts that we've tracked as well as in terms of contract size. They're pretty far up. They're going after some of these larger projects and winning there.
And we've seen some of the farms that we've profiled in here that historically haven't been a part of these collaborative delivery projects trying to do so. So one that stands out is Shimek. They're in their investor calls stating that they're pretty aggressively trying to go after those types of projects to lower their risk profile. So kind of a mutually beneficial method for construction firms and utilities alike. I think we're going to continue to see greater adoption there.
[00:16:40] Speaker A: Yeah, I think that's a really good point. You know, which I didn't ask about and I think I appreciate you bringing that up. The design build, the C more the to some extent public private partnerships. Those construction firms are definitely pushing in that direction. It's a really hot topic as far as data goes. Data dashboards, I think that's in the top five as far as what our clients are interested in just tracking this project. So it will be interesting to see how that unfolds. But that's another example. You know, I've talked mostly about engineering firms, the construction firms trying to capture more or bigger piece of the pie. I mean in their argument also is like things like design build is to make everybody's life easier. Right. As opposed to design bid build.
It ideally speeds up the process, saves some cost on just improved logistics and operations of the. Of the construction. So it'll be interesting to see how it plays out all Right, Caroline. So with that being said, rapid fire conversation, my last question for you is what else is in your work pipeline? What do you got coming out soon?
[00:17:47] Speaker B: Next thing for me is tackling our quarterly reports that we put out. So both M and A, tracking trends there, deal flow, what's happening there, and then top companies, we track 50 of them every quarter, looking at all the updates that they've got.
[00:18:04] Speaker A: So based on what you know, at this early stage, is M and A up this year, how do you feel about. As we sort of move towards the third quarter mark of the.
Of the year, how do things look in M and A?
[00:18:18] Speaker B: Overall, M and A has been up, I think, both in terms of deal count and in deal value. We've seen a lot of major deals recently.
I think part of that is because 2025 is such a slow year, so we're kind of seeing a rebound from that, but definitely seeing a lot of
[00:18:39] Speaker A: momentum so far in 2026 and then that's helpful. And so as far as top companies go, because one of the things we do is we go through the financials, go through the 10Ks, 10Qs presentations, anything jump out topically. As far as the financial reports go, what are executives saying in their transcripts?
[00:19:03] Speaker B: I guess one of the big things we've been watching recently is how they're talking about the conflict in Iran and seems like there's still a big divide there in terms of firms that are being hit pretty acutely by that and firms that are still in a wait and see mode maybe haven't seen impacts yet, but are still anticipating that down the line as the conflict continues to go on.
[00:19:32] Speaker A: Yeah. And it seems like things like diesel prices now that they're back, oil's back at close to $100 a barrel, diesel prices are at their high again.
Will that impact things like delivery of hardware, equipment, just transportation as a whole? So.
All right. Well, that's awesome. That's super helpful.
That being said, I really appreciate you jumping on to share your thoughts on this engineering report. It is a fan favorite, truth be told. I mean, we have engineering construction company clients, but I think like you said, these are gatekeepers to the market. Understanding where they are, who they're partnering with can be really useful. So thanks for sharing your insights. And with that, I will set you free into the weekend for the NFL kickoff on Sunday. I don't even know who the Eagles are playing. Do you know?
[00:20:23] Speaker B: I actually don't know either off the top of my head.
[00:20:25] Speaker A: Okay. Haven't been tapped in that's probably just as well. So for all the listeners out there, Caroline's from Philly, so that's why I'm giving her a little bit of a hard time about it. So. All right, well, thanks, Caroline. We'll talk again soon.
[00:20:39] Speaker B: Thanks for having me.
[00:20:42] Speaker A: All right, that was great to have Caroline share thoughts on that.
Pretty quick rapid fire conversation about that analysis. She really knows what's happening because she's pouring through all the company details. So thanks to her for pulling that together.
So that leaves us with what caught my eye this past week. Well, one story I couldn't stop thinking about this week comes from actually a Bloomberg article that was published this past week. America's reservoirs were quietly filling up with dirt.
It was actually a fairly long article for Bloomberg. But Denver's Strauchist Springs Reservoir has lost almost a fifth of its capacity to sediment that's washed down from wildfire scarred hillsides. And since it was built 40 years ago, Bloomberg puts a national loss at about 25 million Olympic sized swimming pools worth of storage. So that's. What is that? I know we use Olympic sized swimming pools every now and then, but that's roughly 1.8 times the capacity, full capacity of Lake Mead, which has gone to mud. Right. And so one geomorphologist had told Bloomberg it can take as little as 15% sediment buildup to block reservoirs intake entirely. So you know, it's a pretty significant impact and something that shouldn't be overlooked. We built some of these things like I said 40 years ago. So when reservoirs lose capacity, farmers, if the water isn't available to them because there's not enough water specifically in the reservoir, farmers make up the difference by pumping groundwater. And I know it was estimated in 2015 California farmers spent an extra $600 million for pumping. It's pretty significant. So it costs a lot of, whether it be electricity or, or diesel fuel to, to run these pumps.
But this is the American story right now. This is really what I wanted to get at. And we've spent decades building capacity all of these reservoirs across the US and assumed basically someone down the line is going to maintain it. Well, unfortunately we're the ones in the line now and we're the ones who are going to have to deal with it. So my bet is that within five years sediment removal becomes a notable line of item in western utility budgets.
And not just, I don't want to say an afterthought because I know some are dealing with this and this is something that comes up with increased wildfires and drought. And as we can see in places like California, or should I say Colorado, where it really did not snow this past winter, there's going to be a lot of runoff and a lot of that sediment is going to go into reservoirs. So why build more capacity when the capacity is already built? See the reservoirs non revenue water. We built the pipes. Why do we just let it leak out? A number I saw over the past month or two is that the City of New Orleans has said that it's non revenue water or water loss rate is about 60 to 70%.
So that's what caught my eye this past week. So 13 years research has got us to this point and we're happy to be on episode 151. Thanks to all the listeners out there. Thanks again to Carolyn Vauclaine for jumping on this call and thanks to the Bluefield research team across the board for making all of this happen. Let's see what it takes to get to 300. So it'll take a little bit of time, but I look forward to it. If you've got a topic as a listener that you want us to cover or talk about, send a note to
[email protected] if you're just curious about the engineering report or any other research we have available to our clients, you can always go to bluefieldresearch.com it is a good resource. We have blog posts. You can see what podcasts we have, whether it be the Future of Water or the Water Values podcast with Dave McGimpsey. All those episodes are available through the Bluefield Research site and if you have any questions, you can always just shoot us a note. So this is the Future of Water from Bluefield Research. Until next time, be well, be safe and take care.
