Charting Your Course: M&A Strategies for AE Firm Growth

Value strategy know your end game maximize success
January 18, 2024

Nowadays, you seldom travel anywhere without first consulting the Maps app on your smartphone or the navigation system in your vehicle. Unless it’s a quick trip to your neighborhood grocery store or your routine commute into the office, you desire to know the shortest route, the trip duration, and traffic conditions along the way. But if you don’t know your destination, technology can’t help you – and for that matter, nor can anyone else. The same idea applies to firm owners and principals in the architecture and engineering industries. You can call it an exit strategy, a transition plan, or even an “evolution” of your firm, but if you don’t know what that looks like, you’ll undoubtedly get lost along the way.

Choosing Your Destination

AE firm owners have more options than ever when it comes to planning the future of their firm. You can sell shares to existing minority shareholders, to emerging leaders, or more broadly to employees throughout the firm. Some firms are eligible to set up ESOPs or similar programs that allow for a flexible ownership transition to the next generation. Mergers and acquisitions are also a popular choice for AE firms. Large firms are frequently looking to make strategic acquisitions in order to expand geographically, diversify their services, bring subconsultants in-house, or secure talented teams as a shortcut to individual hiring. Private equity buyers have also shown an increased interest in architecture, engineering, and other technical design firms; their strategy is typically to invest in a sizable “platform” firm and then build on it with the acquisition of smaller firms.

Choosing Your Course

Just as navigation apps often offer you multiple route options to the same place, the path that AE principals take to get to their destination can vary. Some internal transitions can involve a much longer time horizon than others based on the financial wherewithal and readiness of the identified buyer(s). Other situations may involve the gifting of shares or perhaps using equity as a performance incentive. There is also no one-size-fits-all approach for working towards an external sale. Looking attractive in an eventual M&A market process might involve overhead expense reduction for some firms and rebranding for others. An independent business valuation and marketability study can help owners pinpoint aspects of the firm where improvement may ultimately yield stronger offers.

Managing Resource Consumption

With today’s gas prices and car repair bills, the cost of taking the wrong road is higher than ever. Likewise, the consequences of driving your firm in the wrong direction can be frustrating and expensive. Your firm has limited resources in terms of finances, personnel, and time, so it is important that your strategic actions align with your chosen destination. Should you direct efforts toward business development and client diversification? Or should you focus on finding talent and reducing turnover? Is a formal marketing plan needed? Can the firm benefit from making an acquisition of its own? These decisions shouldn’t be made unilaterally. In addition to deliberating with your management teams, experienced industry consultants can offer fresh perspectives and assist you with weighing the pros and cons of resource-intensive endeavors.

Starting the Journey

While technology can tell us the optimal streets to take when behind the wheel, it, unfortunately, isn’t advanced enough to tell AE principals every turn they should take, when they should slow down or speed up, or if there is a potential hazard they should watch out for. Strategizing for your future exit and what the company will look like when you get there is no simple task. However, with the right care and attention, a detailed roadmap can be drawn for getting firm owners on an efficient path to their desired destination.

Join our upcoming webinar, AE Firm Value Drivers: The Danger of Not Knowing Your Destination, to explore how value drivers are prioritized differently depending on your end game.

Jeffrey Adams Director Mergers & Acquisitions