Management & Operations

What Wall Street's activity could mean to transit agencies

Posted on July 13, 2007 by Frank Di Giacomo, Publisher

The recent merger and acquisition activity among public transportation consulting firms partly reflects a discovery by Wall Street of something we in the industry have always known: today’s industry is on the upswing and may be worth some outside investments. Merger activity part of larger trends
The recent activity follows a larger trend in the U.S. economy, especially with some high-profile mergers involving both high-tech companies as well as older industries. Yet this activity also reflects a pattern inside public transportation, with the consultant sector only being the most recent example. In fact, the news surrounding firms like URS and Carter + Burgess was in many ways begun by companies like Bombardier, Siemens, FirstGroup, National Express, Veolia, Dina Autobus and NABI. Likewise, the big public offering news announced by AECOM echoes earlier announcements by New Flyer. It also reflects a global interest in public transportation’s growth. Many of the firms mentioned above may not be as interested in U.S. contracts as much as they are in opportunities in rapidly growing markets elsewhere in the world, especially in Asia. China, for example, is investing 9% of its gross domestic product in infrastructure. The U.S., by contrast, invests less than 1%. Why should U.S. agencies care?
Many in the public-sector side of public transportation might shrug their shoulders and say this is all very interesting but has little to do with them. They would be right if they continue to get quality proposals at prices within their budgets. They would be incorrect if they think that’s all it will mean, however. First, it could mean that public-sector agencies will get fewer high-quality offers because of merger activity, particularly on riskier jobs. That was bound to happen anyway, however, precisely because of the risk factors. It could also mean that the offers will get better because with Wall Street’s cash some of these companies can take on more risk. In addition, the consultant sector is different from others in public transportation because the real competitive advantages lie in relationships and knowledge, and less in hardware. Those people displaced by merger-caused restructuring will form new consulting firms and take advantage of niche opportunities overlooked by the bigger guys. It could also mean that the cross-border benefit of these mergers will be outside expertise that could be brought to the U.S. It hasn’t really happened, with mergers in other industries to the degree expected, mainly because U.S. laws and local nature of business relationships in this industry minimize these possibilities. Like past mergers in the public transportation supply side, what this activity will really mean in the consultant sector will boil down to risk. With the additional cash and strength these deals will bring, there may be greater willingness for consultants to help with some of the public-sector risk. Or not. In these other sectors I have mentioned, there was sometimes a reluctance for these bigger companies to take on risk because they got more conservative in their business practices and often focused only on opportunities in the bigger cities and missed where some of the faster growth really occurred. Only time will tell whether all this news will make any of these possible changes realities in the marketplace. Hopefully, it has already underscored the need for both sides of the industry to tear down the walls a little more and talk about what it all might mean to both sides. Both sides should take the opportunity created by these headlines and talk and listen to what the other side says it could all mean. Each side needs a better understanding of the other.

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