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After a Wild Decade, What's Next for Engineering, Construction, and Services?

April 9, 2013 - BOSTON, MA

Over the past ten years, the engineering, construction, and services (ECS) industry has rewarded shareholders handsomely, delivering almost 16 percent annual total shareholder returns (TSRs) on a weighted average basis, despite generating -9 percent TSR over the past five years, according to a new report by The Boston Consulting Group. The report, titled "Value Creation in ECS: Seizing Control of the Cycle," is being released today.

Through the economic upheaval of recent years, the best-performing ECS companies have created shareholder value by growing revenues, expanding profit margins and valuation multiples, paying down debt, paying out dividends, and limiting shareholder dilution. Mergers and acquisitions (M&A) have been one of the strongest sources of revenue growth. Yet the massive swings that even the most successful ECS companies have experienced over the past ten years underscore how powerfully the industry is influenced by global macroeconomic and capital-markets trends. "Value Creation in ECS: Seizing Control of the Cycle" examines the industry's performance and offers lessons that companies can use to better navigate the changing landscape and improve their chances of delivering superior returns to shareholders.

One such lesson is that there are marked differences in the performances of each of the industry's different business models. Process-oriented engineering, procurement, and construction companies, as well as design and engineering companies, delivered the highest TSRs over the past ten years and weathered the downturn of the past five years with the least value destruction. Infrastructure construction companies were hit hard, and they could not scale back their resources to compensate. Concessionaires, which invested capital against lofty revenue projections made during the boom years, were hit the hardest when those projections failed to pan out. "Even so, performance of all the business models varied substantially from one company to the next," said Danny Friedman, a BCG senior partner and a coauthor of the report. "Those differences show that ECS companies can't simply pick the 'right' business model and assume that improved TSR performance will follow."

Another lesson is that capital discipline has become a critical driver of shareholder returns in ECS. "Investors reward companies that minimize asset intensity -- that is, the dollars of capital required to deliver a dollar of sales or profits -- use debt wisely, and are willing and able to pay consistent dividends and increase them over time," says Jeff Hill, a BCG partner and a coauthor of the report. "The top-performing value creators used a substantial portion of their capital to pay dividends -- maintaining or even increasing quarterly dividends through the darkest days of the economic crisis."

The report distils four other key lessons for ECS companies intent on taking control of -- rather than submitting to -- the industry's explosive cycles. They are:

  • Reach a sustainable scale at the company level and on a sector-by-sector basis.

  • Build world-class M&A capabilities.

  • Become cost-competitive to counter emerging global challengers.

  • Focus on differentiation and innovation.

ECS executives who apply these lessons to their own companies can position them to compete and succeed in a dynamic marketplace bristling with new challenges.

To download a copy of the report, please go to

To arrange an interview with one of the authors, please contact Eric Gregoire at +1 617 850 3783 or

About The Boston Consulting Group
The Boston Consulting Group (BCG) is a global management consulting firm and the world's leading advisor on business strategy. We partner with clients from the private, public, and not-for-profit sectors in all regions to identify their highest-value opportunities, address their most critical challenges, and transform their enterprises. Our customized approach combines deep insight into the dynamics of companies and markets with close collaboration at all levels of the client organization. This ensures that our clients achieve sustainable competitive advantage, build more capable organizations, and secure lasting results. Founded in 1963, BCG is a private company with 78 offices in 43 countries. For more information, please visit

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Eric Gregoire
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