Dear Insider,
For every firm owner, the question of what comes next eventually surfaces, sometimes gradually, sometimes all at once. In our last edition of the M&A Insider, we discussed at length the considerations around how to effectively use M&A to get the most out of any transaction, and how to use it as a tool for success. But for any owner weighing their options, the consideration of how to maintain their independence is just as important. Deal volume in the AEC space has remained high, and the phone calls from private equity buyers and strategic acquirers are more frequent than ever. But a transaction is not the only path forward, and for many firm owners today, it is not the right one, nor is it desired.
PSMJ's role has never been to steer owners toward a particular outcome. It has been to help owners achieve the outcome they actually want. For those whose goal is to keep their firm independent, to preserve the culture they built, maintain control over the work they take on, and create a lasting legacy on their own terms, that goal is entirely achievable provided that two factors remain in place: time and people. For an internal transition to succeed, ownership needs viable candidates, and it needs time for those candidates to buy out current ownership while benefiting from the financial value of ownership themselves to purchase further shares. Some firms may not have enough people, and some firms may be too profitable for the number of people they have. High profitability or large size does not ‘force’ anyone to sell.
Independence as a Deliberate Choice
The distinction between choosing independence and simply not selling is more important than it might appear. Firms that have not yet sold are not automatically on a path to lasting independence. Without intentional planning, the absence of a transaction today can quietly become a forced transaction tomorrow, when a founding principal reaches a point where they need liquidity, when there are no internal candidates ready to step into ownership, or when the firm's valuation formula has drifted so far from market reality that an internal transition is so under- or over-valued that the firm leadership chooses or is forced into an external transaction.
Firms that successfully maintain independence over the long term treat it as a strategy. They make deliberate decisions about ownership structure, leadership development, and financial architecture with the explicit goal of ensuring the firm can sustain itself through multiple generations of ownership without needing an external buyer or an ESOP to solve the equation.
This requires a fundamentally different mindset than simply resisting acquisition. It means asking hard questions early and answering them with honest analysis: Who are the next owners of this firm? Can they afford to buy in? What will their return on this investment yield for them? Does our current valuation formula reflect the real value of the business? Is our profitability level creating barriers to internal transition rather than enabling it? Does our Buy/Sell or shareholders’ agreement protect our ownership group? These are not comfortable questions. But they are the right ones.
What PSMJ Has Seen Across the Spectrum
Across more than five decades of serving the AEC industry, PSMJ has worked with firms from across the size and complexity spectrum, from small practices built around one or two principals to multi-office firms with deep leadership benches and sophisticated ownership structures, all the way up to large publicly traded firms. Across all of them, one pattern holds: independence is not a function of size. It is a function of preparation.
Small firms can and do transition successfully to the next generation of ownership. So do large ones. The variables that determine whether that transition succeeds are not about headcount or revenue. They are about whether the firm has done the structural work ahead of time to make it possible.
That work looks different depending on where a firm sits. For some, the priority is identifying and developing the people who will eventually take the reins. For others, it is recalibrating a valuation formula that no longer reflects the business as it exists today. For firms with unusually strong profit margins, there is a specific and often underappreciated challenge: high earnings create high buy-in costs, which can price out the very candidates the firm needs to carry ownership forward. Each of these challenges has workable solutions. None of them resolve themselves without attention.
One of the most consistent findings from PSMJ's work with owners across the country is that the firms most successfully positioned for independence are the ones that started planning early and deliberately. Not because the planning process is complicated, but because so many of the critical inputs, including people development, equity accumulation, and structural adjustments, require time to work.
A principal who begins thinking seriously about internal succession at least five to ten years out has meaningful options. One who begins that conversation at two years out has fewer. One who waits until a triggering event forces the issue may find that an external transaction is the only viable path remaining to achieve liquidity, not because it was the right choice, but because the alternatives were never built.
The earlier a firm engages with these questions, the more flexibility it retains, and the more likely it is that the outcome reflects what the owner actually wanted rather than what the circumstances allowed.
One of the challenges of planning for independence is that the people doing the planning are also running the firm. The principal who needs to evaluate whether the next generation is truly ready to carry ownership is often the same person who hired them, mentored them, and has a strong personal investment in their success. That proximity makes objectivity difficult. PSMJ has identified tools to enable that objectivity, and identify key areas for development with the Harrison Assessment which assesses an individual’s behavior against an ideal profile built from the study of hundreds of top-performing principals.
PSMJ's value in these situations is informed by hundreds of similar transitions across the industry, and it arrives unencumbered by the internal dynamics that can make honest assessment difficult. When a valuation formula needs to be stress-tested, when a succession candidate needs to be evaluated against realistic benchmarks, or when a firm needs to understand whether its ownership structure is actually functional or just familiar, an outside perspective changes the quality of the conversation.
Independence Is Achievable
The firms that have successfully maintained independence across generations have done so because they treated it as something worth building toward, rather than something that would happen automatically. They invested in the next generation of leadership. They kept their valuation formulae aligned with the realities of their business. They established the guardrails of ownership with an effective and well-maintained buy/sell agreement. They revisited their assumptions regularly rather than allowing inherited frameworks to persist past their useful life.
PSMJ's commitment is to support owners in achieving the outcomes they want, and for a significant number of owners, independence is exactly that. The path to it is not mysterious. It requires clarity about goals, honesty about current conditions, and the discipline to act on that analysis before the window narrows.
Whatever your goals are for the future of your firm, the time to start building toward them is now.
The roadmap to achieving those goals is laid out at PSMJ’s upcoming Legacy by Design: AEC Ownership and Succession Strategies Workshop in Denver, Colorado. This event brings together owners from across the industry and delivers decades of distilled knowledge to help you achieve your goals.
At PSMJ, our expertise in supporting ownership transition is distilled into a few key services that help identify and address stress points for transitions long before they grow into fractures that threaten the independence and legacy of your firm. Our process is built on understanding your goals, and draws from knowledge accumulated from hundreds of successful transition plans that have withstood the test of time and through every kind of business environment over the last fifty years. If you’d like to connect with us for a complimentary one-on-one consultation to discuss, you can do so here..