Dear Insider,

Are you and your team ready, or will your firm wilt as your competitors join forces against you? It's the perfect storm- a shortage of talent, AI’s disruptions looming on the horizon, a new administration making major waves in how the federal government allocates funding. The architecture and engineering industries are witnessing change and consolidation at a scale never before seen. Life-changing sums of money are on the move, and whether a firm will win or lose depends on how it’s positioned.

If you want your company to make it through this storm, M&A is a tool to be understood, regardless of whether you plan to buy, sell, or just survive. Many leadership teams are choosing to grow. Their logic isn’t hard to understand, bigger is often better positioned to survive the winds of change. For others, the answer is to prepare their firm to join forces with another, honing their operations and approach to maximize value in a deal, and get the most for themselves and their key people.

If you wish to grow, the key to successful M&A lies in aligning any approach with your firm’s strategic plan. A well-developed strategic plan should cover many areas including identifying long-term objectives such as expanding into new markets, diversifying revenue streams, or enhancing capabilities in a specific discipline.

For example:

• Geographic Expansion: A firm looking to enter a high-growth region can acquire a local firm with established clients and market knowledge, bypassing the time and cost of starting from scratch.

• Service Diversification: By acquiring a firm with complementary expertise, such as a civil engineering firm adding environmental consulting, the buyer instantly expands its service offerings.

• Client Base Growth: An acquisition focused on a firm with deep relationships in target industries can open doors to new contracts and opportunities.

When approached thoughtfully, M&A integrates seamlessly into a firm’s broader strategy, turning it into an enabler of long-term goals rather than a standalone activity.

Buy-side M&A: A Value Multiplier for Owners Planning a Sale

Other ownership teams are looking to ride the waves of this market to the best of their ability. For many of these, buy-side M&A has been a game-changer. Acquiring other firms before selling your own might seem counterintuitive, but it’s a strategy that can significantly enhance the firm’s valuation and attractiveness to buyers.

Here’s why:

1. Increased Revenue and Profitability: Acquisitions can boost top-line revenue and profitability, making the firm more appealing to prospective buyers. Larger firms tend to command higher multiples in M&A deals.

2. Expanded Market Presence: By acquiring firms in strategic markets or sectors, a firm increases its footprint and relevance, enhancing its perceived value to acquirers.

3. Stronger Competitive Position: Consolidating capabilities through acquisition creates a more formidable market position, which can translate into higher premiums during the sell-side process.

4. Better Exit Options: Firms with recent successful M&A activity are often viewed as more dynamic and capable of driving future growth, which can attract a broader pool of potential buyers.

By executing one or two well-placed acquisitions before initiating a sell-side process, owners can significantly increase the final sale price and terms, potentially even changing the entire bracket of interested buyers by moving up-market.

The Importance of Planning and Expertise

As with any new initiative being considered, knowing the risks is critical. Poorly planned acquisitions can drain resources, strain operational systems, and lead to cultural mismatches. This is why firms must ensure their ‘house is in order’ before pursuing an acquisition. Any initiative involving buy-side M&A requires the same rigor a leadership team would apply to other strategic initiatives:

• Target Screening: Firms should prioritize acquisition targets that align directly with strategic goals, using predefined criteria to narrow the field. As an acquirer, you will need a strategy that defines why you are making an acquisition so that you can get the most out of the process.

• Due Diligence: Thorough financial, operational, and cultural assessments are essential to identify risks and integration challenges. Any buyer should ensure they have a clear understanding of who they will need to bring into a due diligence process. This typically requires accounting, legal, and tax advisors to conduct a deep dive into the structure of the transaction itself, as well as the financial and organizational information of the seller.

• Post-Acquisition Integration: A detailed integration plan ensures that the acquired firm’s value is fully realized while minimizing disruption. A plan for integration should be established with a seller long before the transaction is complete, as failed integration is the number one reason for failed M&A.

Conclusion: The Buy-Side Advantage

For middle-sized AEC firms, buy-side M&A is the ultimate mechanism for breaking through growth plateaus. By aligning acquisitions with a strategic plan, firms can achieve goals faster and more effectively than through organic growth alone.

For owners eyeing an exit, buy-side M&A is not just a growth tool—it’s a value multiplier. The right acquisitions can transform a firm into a more attractive and profitable target, ensuring a higher payoff when the time comes to sell.

As this industry witnesses a degree of consolidation never before seen, standing still is not an option. Buy-side M&A provides the agility and opportunity firms need to thrive, whether your ultimate goal is growth, continued survival, or a successful exit. Given the forces entering this industry, arming yourself with the knowledge needed to determine what is the best approach for you and your firm is more critical now than ever.

Are you concerned about your firm’s future? Have you thought about a strategy for growth? These kinds of considerations aren't just for large firms. Do you have questions about this, or do you want to connect with us to discuss? Let us know with a comment below, all comments are reviewed by PSMJ’s M&A advisory practice, and are not shared publicly unless you request them to be.

More on this topic and others related to M&A will be shared at the upcoming AEC M&A Summit on February 26-28, 2025. More information can be found HERE.