Beyond the Multiples: The Art and Science of AEC Firm Valuation
What is your AEC firm really worth? It’s one of the most critical questions a leader can ask, and the answer is far more complex than a simple formula. A successful M&A deal is built on a foundation of clarity and strategic insight, not formulas. Relying on market multiples alone can be misleading and may leave significant value on the table during a transaction.
Because this topic is so crucial, I wanted to bring this conversation to the forefront. For the latest episode of AEC Unscripted: M&A Edition, I sat down with two leading valuation experts to explore it in depth: Tracey D. Eaves, MBA, CBA, CVA, BCA, CMEA of Zweig Group, and my colleague from Stambaugh Ness, Becky Carlson, CPA, ABV. Together, we discussed the guidance firm leaders need to get a clear picture of their firm’s worth and maximize its value.
Fair Market vs. Strategic Value vs. Offer Price
One of the most common points of confusion is the difference between value and price. They aren’t the same thing, and understanding the distinction is key.
Fair Market Value
The baseline – the theoretical value of your firm to a hypothetical, impartial buyer in the open market.
Strategic Value
A higher potential value your firm might have to one specific buyer. This buyer is willing to pay a premium because you perfectly fit their strategic goals – be it entering a new geographic region, acquiring a key service line, or gaining a major client. As Becky explained, finding that perfect fit changes everything.
“I have been looking for a company who does healthcare in Austin for five years, and I finally found one… Then maybe I’m willing to pay above and beyond that Fair Market Value.”
Final Offer Price
The reality of what a buyer puts on the table. It starts with their view of your value but is heavily influenced by deal terms, tax implications, and their own strategic objectives.
Why Income is More Important Than Book Value
For professional services firms, the balance sheet doesn’t tell the whole story. Unlike manufacturing or construction, an AE/Consulting firm’s primary assets aren’t physical – they’re the people, processes, and reputation that generate future profits.
This is why income-based approaches are far more important than asset or book value. Your firm’s worth is ultimately determined by its ability to produce a consistent, predictable stream of cash flow. The intangible assets – often called goodwill – are what drives this income. As Tracey noted, this is the core of valuation for our industry:
“From the perspective of the intangible value, that’s nowhere on anybody’s balance sheet. And so what our purpose and process is, is to determine not only what the tangible value is… but what’s the rest of it.”
Costly Misconceptions: Multiples, Working Capital, and Deal Terms
Several common misconceptions can derail a transaction or lead to a disappointing outcome. We discussed three of the biggest:
EBITDA Multiples are gospel.
A multiple is a rule of thumb, not a precise valuation. It’s a byproduct of a valuation, not the driver. The final number is meaningless without knowing what adjustments were made to the EBITDA calculation and, most importantly, the deal terms.
Working Capital is part of the price.
A buyer isn’t “buying” your working capital (Accounts Receivable + Work-in-Progress – Accounts Payable). Instead, they expect you to leave a certain amount in the business at closing to ensure smooth operations. A poorly managed or high working capital target directly reduces the cash you receive at closing.
The Price is all that matters.
The structure of the deal is just as important as the price. An asset sale vs. a stock sale, the payout timeline, and other terms can have massive tax and logistical consequences. Tracey puts it best:
“Sounds great, but you do not know what the deal terms were… When you hear multiples in the market, you do not know what those deal terms were.”
Practical Steps to Maximize Your Firm’s Value
Thinking about a future sale isn’t something that should start a year before you want to exit. The planning should begin now. Here are some key questions to ask yourself, based on our conversation:
Do we have an objective view of our performance
An independent valuation is like a pre-sale due diligence process. It gives you an impartial look at your firm’s strengths and weaknesses, allowing you to fix issues long before a buyer finds them.
How clean is our working capital?
Tracey’s advice was clear: start tightening your collections and cleaning up your WIP today. A demonstrated track record of efficient working capital management will pay dividends in a transaction.
What does our leadership runway look like?
Buyers are investing in the future. A firm with a strong next level of leadership and a clear succession plan is far more valuable and less risky than one dependent on a single owner who plans to leave immediately after the sale.
Listen to the Full Conversation
These points only scratch the surface. To get the full, unscripted insights from two of the industry’s top valuation experts, I invite you to listen to the complete discussion below.
