More and more architecture and engineering (A/E) firm leaders are finding themselves at a crossroads.  Most frequently, these leaders are facing one or more of the following challenges to continued growth and prosperity 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…tired of the non-design work of running a business.

While many of these firms have been quite successful operating independently, they have reached a point where succession will come through an external sale through a merger or acquisition. 

With this as a backdrop, there are some key pitfalls to avoid when considering or embarking on the process of selling an A/E firm (of any size!).  Here are five of them:

1. Serious 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.  But, candid and transparent discussion amongst your ownership/leadership team is a must.  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.  Prospective buyers can quickly sense 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.    

3. Unrealistic valuation expectations. Again, there is always some degree of reluctance in this and that is often, in first generation firms, driven by a level of sentimental value.  Buyers don’t buy sentimental value.  Further, buyers will seek institutional value as opposed a firm’s fortunes that are tied largely to one or two rainmakers.  Get an outside opinion on the value and marketability of the firm before going to the negotiating table. 

4. 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.  And, more than just stick around, expect to be working quite hard.  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.

5. Not keeping the firm transaction-ready. Let’s say that you aren’t actively marketing the firm but are passively open to considering opportunities.  Most buyers will cut you some slack and be somewhat patient while you gather requested information.  However, this only goes so far.  Financial statements that must be created from scratch or that are loaded with personal expenses can be a big turn-off.  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 Mergers & Acquisitions Senior Executive Roundtable.  In a defenses-down and confidential setting, this is one of the best industry-specific ways to get up to speed on the entire M&A process from starting the strategy to setting expectations in post-closing integration.  This one small investment could have a big impact on the outcome of your sale. 

In mergers and acquisitions (whether you are buying or selling), it is easy to make a million-dollar mistake. Ever wish there were a place where you could get the latest insight on how deals are coming together, hear war stories of what to watch out for, and get the tools and tips you need for M&A success? More than just a seminar, PSMJ's Mergers & Acquisitions Roundtable was designed to ensure that we give you an equal mix of learning and doing. With plenty of case studies, exercises, and examples of valuation and deal structures on real M&A deals, you’ll see why this program always fills up quickly.