Over the past five years, we have witnessed a significant uptick in mergers and acquisitions (M&A) activity throughout the architecture industry. This is happening across the board among firms big and small, new and established, and within various niches. There are no signs that it will slow down any time soon. In fact according to one recent survey, 62 percent of architecture, engineering, and planning firms with 50 or more employees are seriously pursuing a merger and/or acquisition within the next five years.
That so many firms are seeking to consolidate these days is the direct result of two converging trends:
On one side, the way projects are designed, planned, and built has been fundamentally changing over the past decade, and the most successful firms will be those that are able to evolve with these shifting trends. As a whole, we are seeing the architecture industry embracing a more integrated business model with firms increasingly offering a boutique of services, such as engineering, design, construction, and landscaping. Some firms have even begun selling building and design supplies.
On the other side, the drive to consolidate is being met by an increasing number of baby boomer firm owners and principals who are heading towards retirement and are looking for a way to either get out of the business or hand over the leadership reigns to someone else. Many of these firms are smaller and target highly specialised niche markets.
For smaller firms looking to expand their reach and services and larger practices looking to break into new markets, M&A transactions seem like the ideal solution. They just have to merge their resources, and they will live happily ever after. But to get an M&A right, firm owners have to be ready for a long and complex process that should to be handled with foresight and care.
5 Characteristics of a Merger or Acquisition Done Right
While many bigger firms may have already gone through one or more mergers and acquisitions and have a significant amount of resources to direct to the process, smaller practices tend to be less prepared. That fact typically presents a challenge. The onus is on the small practice owners to be aware of the process as well as who will be affected by it, and ultimately make informed decisions. Keep in mind that a good merger or acquisition won’t just happen by itself, but a bad one will.
That said, the following are some tips to help ensure success for any small and mid-sized firm that is considering their first merger or acquisition:
- Have clear goals. Before anything, firm owners need to be be crystal clear about their reasons for entering a merger or acquisition, what kind of firms they will be targeting (whether as a buyer or as a seller) as well as what they hope to accomplish through the transaction. They should also have a realistic rough time frame in mind for the process.
- Scope out the market. Once they know what they are looking for, owners now need to research the market. This means gathering relevant data based on firm type, number of employees, market sector, profit and revenues, region, as well as past and potential growth rate. Those interested in a merger or a sale will be able to use this data to find out if there’s a market for their firm and also determine what price they can ask for. Those interested in an acquisition, would not only be looking for potential buys within a given price range, but they should also seek to figure out how successful comparable acquisitions have been.
- Communicate, Communicate, Communicate. A merger or acquisition is not some faceless business transaction. It affects not only the lives of firm owners, but also their employees, their clients, and any investors. The input and involvement of these groups in the process shouldn’t be overlooked.
- Build the right team from the start. M&A transactions require a lot of professional assistance. This means business consultants, attorneys, and accountants who are knowledgeable and experienced in assisting merger and acquisition arrangements within the architecture industry. Firm owners should also include bank representatives in this list, since financing the transaction or transferring funds will inevitably involve the bank at some point.
- Have patience. Firm owners need to give the process the time it needs. Depending on the complexity of the transaction this could mean many months or even a few years. But, it is usually worth the wait. When firm leaders enter into an M&A transaction under pressure that’s when costly mistakes get made.
The bottom line is that even though no two M&A transactions are the same, there are certainly some basic strategies smaller firms that are new to the process can follow, and by doing so, they can help to make the transition a whole lot easier and more effective for everyone involved.