Merger & acquisition activity in the architecture and engineering (A/E) space is on a tear these days. A big driver of that is the growing camp of firm leaders who are finding themselves at a crossroads. Most frequently, these leaders are facing one or more of the following challenges to continued growth of their firms:
· A changing competitive landscape…the big firms just keep getting bigger.
· An internal succession bottleneck…more supply than demand for equity.
· Bigger personal objectives…growing tired of the non-design work that comes with running a business.
While many of these firms have been quite successful operating independently, they have reached a point where succession will most likely come through an external sale via merger or acquisition.
With this as a backdrop, watch out for these deal killers to avoid when considering or embarking on the process of selling your firm:
1. Ignoring reservations and conflict as to whether external sale is the right course of action. Of course, there will always be some reservation and reluctance in this…especially outside of the context of evaluating a specific opportunity. But, candid and transparent discussion amongst your ownership/leadership team is a must BEFORE you break bread with a potential buyer. In the end, not all of you will agree with every aspect of the decision to seek an external buyer, but you all must agree that it is the selected strategy before going to market. Smart prospective buyers can quickly sniff out discourse in the leadership team and will run away quickly when they do sense it.
2. Viewing internal succession and an external sale as mutually exclusive. Building a team and creating value with the long-term expectation of aligning with a like-minded strategic partner for continued personal and corporate growth is a very viable strategy. In fact, completely abandoning leadership development can be a turn-off for buyers. Keep moving forward on leadership development.
3. Using valuation expectations that aren’t tied to today’s market. The market for A/E firms has changed a lot in the past few years. If you haven’t gotten a reliable outside opinion of your firm’s value in the past 24 months, start there. Of course, this isn’t to set the price…just to set expectations. You just might find that the value of your firm is a lot higher (or lower) than you expect.
4. Having an unclear picture of what post-acquisition life will be. It won’t be cash at closing and riding off into the sunset. Especially if there is a lot of firm value tied up in key individual(s), expect to stick around for a while if you want to get top dollar for the firm. Make sure that you are completely comfortable with your post-acquisition role (and reporting relationships) and ask plenty of questions about this in the early courtship stages. This can often be where there is a lot of ambiguity…and friction.
5. Not keeping the firm transaction-ready all the time. Let’s say that you aren’t actively marketing the firm but are passively open to considering opportunities. Some of the best buyers love this…and find that the best acquisitions aren’t always actively seeking a buyer. But, keeping clean accrual-basis financial statements is a win for everyone involved. Additionally, a well-conceived and up-to-date strategic business plan can go a long way towards showing a prospective buyer that remaining independent is a very viable option.
BONUS WAY: 6. Failing to attend PSMJ’s A/E/C M&A Summit coming to Scottsdale on December 12-13, 2023. Join leading A/E/C mergers & acquisitions experts and firm buyers and sellers for two powerful days of valuation, deal structure, and creative success networking. Plus, add on the optional pre-conference A/E/C Mergers & Acquisitions Essentials Workshop on December 10th that teaches architecture and engineering firm executives how to make smarter decisions and drive better deals... based on actual transactions that are happening right now in today's market conditions!