The Due Diligence Pivot: How MKSK Evaluated M&A Alternatives and Found the Right Path Forward
When firm founders begin contemplating retirement or succession, exploring an external M&A transaction is often the natural starting point. Strategic buyers, private equity groups, and platform firms are actively seeking quality architecture and engineering talent, making third-party sales an obvious path for unlocking equity.
Evaluating AEC M&A alternatives is essential for finding a model that truly fits your firm’s future. During due diligence, many AEC leadership teams hit a familiar crossroads, asking: How do we secure fair value for founding partners while preserving our firm’s culture, brand identity, and long-term independence?
In a recent episode of AEC Unscripted: M&A Edition, I sat down with Christopher E. Hostettler, CPA, former CFO and current advisor at MKSK, a nationally recognized landscape architecture, urban design, and planning firm. Together, we discussed how MKSK’s leadership team navigated this exact challenge and how a thorough evaluation of all available transition alternatives ultimately led them down an unexpected path.
One of the most important lessons from our conversation was that due diligence works both ways. While buyers are evaluating your firm, owners should be evaluating whether a transaction truly aligns with their long-term vision. In MKSK’s case, the process revealed that liquidity alone was not enough. The firm needed a solution that balanced shareholder value, leadership continuity, employee engagement, and long-term independence.
Here is what MKSK learned while evaluating M&A suitors, and how carefully assessing alternative transition paths positioned them for sustained long-term growth.
The Due Diligence Pivot: When External M&A Isn’t the Right Fit
For years, MKSK entertained interest from larger architecture and engineering firms looking to add specialized landscape architecture and planning capabilities. Known for landmark urban transformations like Columbus’s Arena District, waterfront master plans across Indianapolis and Detroit, and award-winning civic spaces, MKSK represented an attractive acquisition target. On paper, a strategic sale offered clear liquidity and expansion potential.
However, after entering serious discussions and conducting due diligence with potential buyers, MKSK’s leadership reached a pivotal realization: a traditional acquisition risked diluting the unique brand, community-focused values, and collaborative culture they had spent nearly three decades building. As Chris shared during our conversation, the diligence process ultimately created clarity rather than a transaction.
“We were proud of the communities that we serve, proud of the award-winning projects, and most proud of the leadership team and culture we’d built. We just didn’t feel that was sustainable if we were to move forward with a traditional M&A.”
Walking through the process helped MKSK better define what they were unwilling to compromise: culture, brand identity, and local decision-making authority. This is a lesson many AEC firms can benefit from. Succession planning is about much more than selecting a buyer or maximizing valuation. It is about determining which transition strategy best supports the future you envision for the business. Rather than becoming part of a larger organization, MKSK wanted an alternative structure that balanced owner liquidity with long-term autonomy and legacy preservation.
Evaluating the Alternatives
Before landing on their final transition strategy, MKSK explored a traditional internal buyout among younger partners. The firm had strong emerging leaders prepared to take on greater ownership responsibilities, but the financial realities created a common challenge we see across the industry.
Internal Buyout vs. Financial Realities
When firm owners consider internal succession, the primary obstacle is often capital. Younger principals and key leaders frequently lack the liquidity necessary to purchase founders’ shares at fair market value without taking on significant personal or corporate debt. While internal buyouts can preserve culture and client relationships, excessive debt can constrain future growth by limiting investments in talent, technology, and strategic initiatives. As leadership evaluated the available options, they recognized the need for a structure that could provide fair value to existing shareholders while preserving the firm’s financial flexibility.
The 100% S-Corp ESOP Alternative
After evaluating both external and internal succession options, MKSK spent approximately 18 months analyzing a third alternative: a 100% Employee Stock Ownership Plan (ESOP). The eventual solution required more than a transaction structure. It also demanded thoughtful governance, leadership development, and long-term organizational alignment.
By converting from an LLC to a 100% S-Corp ESOP, MKSK unlocked several strategic advantages:
- Tax-Free Cash Flow: Because an ESOP is a qualified retirement trust, a 100% S-Corp ESOP generally does not pay federal or state income taxes. This enhanced cash flow helped fund seller obligations efficiently while preserving operating flexibility.
- Fair Value for Founders: Selling shareholders received fair market value for their ownership interests, established through rigorous valuation and financial modeling, while allowing repayment obligations to be structured over time.
- Cultural Continuity: The firm maintained its recognized brand, leadership structure, and geographic footprint, creating continuity for employees, clients, and future leaders.
Three Lessons from Chris Hostettler’s Transition Experience
Throughout our discussion, three themes consistently emerged:
- Use buyer conversations to clarify your priorities, not just determine value.
- Evaluate multiple transition paths before committing to a structure.
- Recognize that successful ownership transitions require governance and leadership development, not just financing.
These lessons apply regardless of whether a firm ultimately pursues a strategic sale, private equity recapitalization, internal transition, or ESOP.
Post-Transaction Momentum: Growth Beyond the Deal
One of the most common concerns owners raise when evaluating internal transition alternatives is whether those structures can support continued growth. While no ownership model guarantees success, MKSK’s experience demonstrates how an aligned transition strategy can create a platform for long-term expansion. In the seven years following the transaction, the firm doubled in size to approximately 140 team members across 12 studios in five states while maintaining its brand identity and leadership continuity.
During our conversation, Chris and I also discussed how governance, transparency, and employee engagement played important roles in supporting that growth.
- Disciplined Governance: MKSK streamlined its board structure, added an independent outside director, and established an Advisory Board of industry peers to provide strategic guidance and accountability.
- Recruitment & Retention Differentiation: In a highly competitive AEC talent market, employee ownership created a meaningful differentiator, giving team members the opportunity to participate in long-term value creation without requiring personal investment.
- Open-Book Performance: Regular communication around financial performance fostered greater organizational alignment, helping employees understand how project execution contributes to long-term firm success.
Aligning Your Transition Strategy with Your Firm’s Growth Goals
Succession planning is not simply about choosing a buyer. It is about evaluating all available transition paths against your firm’s strategic priorities, leadership objectives, and desired future state. Whether you ultimately pursue a strategic M&A transaction, private equity recapitalization, ESOP, or internal ownership transition, comprehensive financial analysis and rigorous due diligence remain essential. By understanding the implications of every option, AEC leaders can make informed decisions that balance shareholder liquidity, operational flexibility, governance needs, and long-term growth goals.
As Chris noted during our discussion, the ultimate objective was never simply completing a transaction. It was creating a structure that would empower the next generation of leaders while preserving the culture and purpose that made MKSK successful in the first place.
For many AEC firms, that may be the most important succession planning question of all.
Listen to the Full Episode
Want to hear Chris and me dive deeper into MKSK’s 18-month transition journey, board restructuring, governance evolution, and financial modeling lessons? Listen to Episode 16 of AEC Unscripted below:
Ready to discuss your transition strategy? Whether you are contemplating an external sale, evaluating private equity partners, exploring an ESOP, or considering other internal succession alternatives, Stambaugh Ness offers a full continuum of services to help you reduce risk, maximize value, and position your firm for long-term success.
