Architecture firms today are facing a competitive landscape that favours both consolidation and collaboration as well as the ability to quickly adapt to changing trends. In this brave new architectural world, there are two main pathways to success: either be hyper-focused on a niche market, or figure out how to expand the quality and quantity of the services being offered, all while maintaining a healthy profit margin.
This trend is perhaps the main driving force behind the recent uptick in M&A activity throughout the architecture industry. It certainly seems easier and quicker to tap into an existing operation rather than build up something from scratch or agree to an acquisition rather than closing down a studio and letting its carefully cultivated reputation, client list, skilled staff, and connections go to waste.
But expansion via a merger or an acquisition is definitely not for every firm. Trying to bring together different organisational structures, cultures, and missions isn’t easy, even with the best due diligence. It may look good on paper, but the process is often full of pitfalls, dead ends, and unexpected, often costly obstacles.
For this reason, some studios may want to consider one or more M&A alternatives as a long-term solution. Even with these alternatives in place, an M&A could still happen later on. But at that point, the firm will be in a better position to find a good partnership.
- A strategic alliance (also called a soft merger). With a strategic alliance each practice can maintain its autonomy, physical work space, and brand name. But, the partnership opens the door to collaboration: shared resources, experiences and expertise. Building a strategic alliance is a way to expand without exposing the firms involved to some of the liabilities that come with a formal merger or acquisition. If things don’t work out, the firms can just choose to end the partnership. The downside to this, however, is that the firms may be less motivated and committed to making the partnership successful.
- Bringing in outside leadership. Another option for studios looking to expand while maintaining their full autonomy is to bring in seasoned leadership from other firms. Though this practice is fairly common (and successful) in the business world, it is much less so among architecture firms. But when management and leadership talent is needed to properly support growth and development, and there is a shortage of individuals within the firm to take on those roles, then it makes sense to bring in outside leaders who possess strong management skills and all-round business experience. Of course, firms need to have the right approach to hiring so they can attract talented executives who can truly meld with the firm’s unique culture and mission.
- Develop a leadership and succession plan from within. Having an internal group of up and coming leaders who could be tapped to fill new positions or take over a current one, is good business sense for any firm regardless of where it is in the growth cycle. Especially important is the fact that these talented professionals already work at the firm and are thus familiar with its culture, mission, and methods of approaching and completing a project. To get such a system going, however, requires time (at least five years) and effort. But, it’s worth it since there will be people ready to take the firm to the next level whether or not that involves a merger or acquisition.
Bottom line: M&As are not necessarily a quick and easy solution to a gap in market reach, expertise, or talent, and some firms may find greater success if they try other strategies out first before they consider such an arrangement.