Dear Insider,

There is no “one-size-fits-all” answer to ownership transition. PSMJ has helped thousands of owners build and execute their strategies over the last 50 years across the full spectrum of options. Today, we lift the hood on why firm owners pick each option, as well as some of the nuances involved.

The Internal Exit: Preserving Legacy

An internal exit, whether through selling shares to next-generation leadership or creating an ESOP, typically provides lower immediate financial value compared to an external deal. However, the real benefit is continuity: legacy, culture, and independence remain intact.

Importantly, for smaller firms (especially those under $1 million EBITDA and very significantly below $500,000 EBITDA), internal exits can provide better financial outcomes. External buyers may be less interested in small firms, reducing competitive tension and valuations. In these cases, an internal transition often represents not just the more practical option but the higher-value one.

We’ve talked before about the dilemma of success, posed to internal transition plans by rapid financial success at larger firms, but there are still options available. PSMJ has worked with dozens of large engineering and architecture firms in the last few years to preserve their internal transition plans while still achieving a fair outcome.

For any internal transition planning process, the keys to success are time and people- the sooner you start to plan, the better outcome you will have. The more you invest in your people as leaders, the better chance you will have of them being able to step into the role of owners. 

The External Exit: Maximizing Economic Value

An external exit, such as a sale to a strategic acquirer or private equity buyer, typically delivers the highest financial return. These buyers can pay more because they bring synergies, capital, and a desire to quickly expand their market position.

For firms with strong EBITDA (earnings before interest, taxes, depreciation, and amortization), particularly those well above the $1 million threshold serving desirable end markets, an external transaction will most often result in a premium outcome. Different sizes and different markets have different opportunities available to them in the market. At the larger end of the size spectrum with desired services and end-markets, the full spectrum of options is available including public and foreign buyers who especially tend to push valuations higher.

For any external exit, the key to success is having a well-managed competitive process leveraging the expertise of an M&A advisor, as well as the right legal and accounting help.

A Spectrum of Options: It’s Not Black and White

The decision between internal and external is rarely absolute. Instead, think of it as a spectrum:

• Legacy End: Internal transitions (next-gen sale or ESOP) protect culture, independence, and continuity.

• Middle Ground: Minority recapitalizations or private equity recapitalizations preserve much of the firm’s legacy, while also providing liquidity and growth capital.

• Economics End: Strategic or foreign buyouts deliver maximum financial return, but often at the cost of control and legacy.

When considering your own plan, you must balance what matters most: financial outcome or cultural continuity. The options available to you depend on your firm size, profitability, ownership goals, and who your next generation of leaders are. Only you can decide what path you want for yourself and your firm.

The Takeaway

There is no “one-size-fits-all” answer to ownership transition. For firms above $1 million EBITDA, external exits tend to create the strongest valuations, but these firms are also eligible to become acquirers themselves. For smaller firms, particularly those under $500,000 EBITDA, internal exits may provide both better economics and stronger cultural preservation. The question we pose to you- what is your goal? Do you want to grow? Do you want to sell?

The key is to view transition planning as a strategic process for you and your ownership team to consider. If you plan to transition internally, have a plan, and use the right approach to achieve your goals.

Are you ready? PSMJ’s M&A Advisory and Ownership Transition practice has helped thousands of AEC firm owners find, structure, and execute their M&A and Ownership strategies with lasting results. Whether you’re looking to expand your firm with an acquisition, plan your exit strategy via internal or external sale, our bespoke approach is built around you and your goals. PSMJ’s award winning team of experts is here for you every step of the way.

Learn more about PSMJ’s M&A advisory services here.