Is it Time to Buy or Sell? Top M&A Market Indicators for A&E Firms
Even if you don’t have current plans to buy or sell, 2021 has become a crucial year for you to refresh your awareness of merger and acquisition (M&A) essentials. As an owner in the architecture and engineering (A&E) industry, M&A considerations should be part of your long-term strategic planning whether or not you have a specific deal in mind.
We’ve put together this quick M&A overview for A&E firms as a basic thought starter.
Why think about M&A now – what’s so special about 2021?
According to A&E management consulting experts like Morrissey Goodale, there were at least three underlying factors fueling record deal announcements in the early months of 2021.
- An uptick in retirement or divestiture among Baby Boomer principals has accelerated transfer of ownership or leadership succession decisions.
- The prospect of a large market infusion from pending infrastructure legislation is motivating firms to re-evaluate their competitive postures.
- A sense of urgency for firms to recapitalize, expand geographical footprint, crack new vertical markets, or add service expertise before record-low interest rates move up.
Two emergent trends are amplifying these three market influences. First, with increasing public pressure on government agencies at all levels to respond to climate events, Morrissey Goodale also reports that (according to their A&E industry research) up to 30% of new M&A activity in 2021 is happening in the environmental services sector. Second, A&E firms are rethinking office and workforce norms that have been upended by the global coronavirus pandemic effects.
What are the top A&E considerations for mergers or acquisitions?
We already mentioned ownership transfer and leadership succession planning as two key M&A considerations. Even if you’re not currently considering a deal, there are other reasons to include potential M&A scenarios in your long-range planning.
Properly planned and executed acquisitions allow you to invest in growth by expanding your geographical presence to be closer to strategic clients or prospects. They also give you the opportunity to expand your service offerings in verticals where your acquisition target already has expertise and brand equity. In many cases, these are established niche players in markets you want to enter with solid financials and strong talent you can groom for leadership.
After a year or more of cost cutting and process improvement measures to stay right side up through the pandemic, many of the more viable big firms have a strong cash position. This is an especially good time for them to evaluate your firm for a potential fit because there’s less buyer-side competition and new capital is relatively cheap (for now). Being acquired can be a profitable way to meet or accelerate your ownership transfer goals, but done right, it can also help ensure the longevity of your firm and the well-being of your employees and customers.
Continuing the conversation
We have deep expertise in helping A&E clients profitably navigate the tax and accounting implications of M&A transactions. We invite you to contact us to talk about your individual business needs and how you might benefit from current M&A market conditions.