Mergers & acquisitions: Understanding the process and navigating career trajectory after expansion

Mergers and acquisitions:

Understanding the process and navigating career trajectory after expansion

It is a common news headline in our architecture circles these days — “Firm X has acquired Y Group” — which is followed by an internal dialogue wondering whether the company we are working for will be next, on either side of that transaction. Will our smaller firm undergo a merger, which is when two similarsized companies combine forces to become a new entity? Or will it be an acquisition, in which a larger company procures a smaller one, often for market gains or shareholder value? In the architecture industry, we are typically looking at an acquisition, and depending what company you are working for, there is a good chance you will end up on one side of this transaction in your career. As of a 2015 merger and acquisition survey of A/E/P and Environmental Consulting firms by Zweig Group, 78% of architecture and interiors firms indicated their five-year plans included a merger or acquisition for strategic purposes1 . In one week in April 2022, there was an average of 13 merger and acquisition (M&A) transactions throughout the domestic U.S. architecture and engineering market2. By July, a single M&A advisory company, AEC Advisors, had closed 60 deals in the past three years3. Those five-year-plan targets are clearly tracking, so it is probably a matter of when, not if, we will each experience this in our careers.

As an architect in a midsize, multidisciplinary firm in the Southeast, I experienced the acquisition process firsthand at the beginning of 2021. Our firm of about 120 people between two states was acquired by a large, corporate A/E firm headquartered in the Midwest that had over 1,000 employees between three countries. I had spent nearly a decade at Stevens & Wilkinson (S&W) when this occurred, working my way from intern to associate to shareholder in that tenure. I

Above SSOE’s ProMedica Wildwood was dedicated and locked in on a leadership track. So, when S&W’s shareholders were confronted with voting in favor of this acquisition, I (among others) had concerns on what it would mean to become a small fish in a big pond.

SSOE Group is what is known as a “Big-E, Little-A” firm, meaning it is still multidisciplinary but is more well-known for engineering and industrial projects. In M&As, there are several reasons that a firm or company may seek to buy another or, on the flip side, that a firm may decide to sell. Having a need to fill is often the primary driver. In the case of SSOE, they were looking to expand their architecture brand, and Stevens & Wilkinson was looking to address gaps in succession planning. Both parties were also looking for growth. Growth is not only related to markets and projects, but also to revenue and stock price. In a privately owned company, stock is based on a formula, and to continue to grow the stock value, the company profits need to grow. The percentage of organic growth can be difficult to maintain as a firm grows larger, and subject to outside factors like inflation and recessions. As a result, many firms, including SSOE, begin to shift to M&A as their primary growth vehicle. In the case of Stevens & Wilkinson’s acquisition, our brand of “smart design solutions” allowed SSOE to market our work when pursuing corporate and commercial projects with their long-standing industrial clients. This synergy led to new project opportunities within the first year — opportunities neither firm could have landed on its own.

These are examples of each firm’s work before the acquisition, and why both companies saw value in combining talents to market new opportunities in various sectors.

Above Stevens & Wilkinson’s Clemson University

Betsy Hurner Hurner has more than 20 years of experience in the AEC industry. As SSOE’s vice president of Corporate Development, she oversees and integrates organic and inorganic growth functions, including M&A, marketing, and business development. This includes direct oversight of SSOE’s acquisition strategy.

In an interview with Betsy Hurner, vice president of Corporate Development at SSOE Group, she elaborated on the M&A process at a large A/E corporation. Every company will be unique, but the general principles are the same — identify the opportunities and constraints to growth, then develop a profile of a firm that will address those constraints. Criteria generally include markets served, location, disciplines, and size of company to seek. The process can start in a variety of ways. Companies will often engage outside advisory services for either side of a transaction. Strategic acquirers will often engage a buy-side advisor to search for companies they can acquire or invest in, as well as to assess the value of potential deals. A buy-side M&A advisor will contact several companies meeting the acquiring firm’s acquisition criteria, often including companies that aren’t actively for sale. On the other side of the transaction, firms looking to transition ownership or liquidate their equity will often retain sell-side brokers or investment banks to help market their company to potential buyers and drive transactions to a successful close.

The timeline of a deal can vary depending on the circumstances, but once a firm has been identified and there is mutual interest from both parties, there are generally several rounds of meetings, information exchanges, reviews of financials/valuations, and the appropriate approvals before a “letter of intent” is submitted. At a high level, this outlines the purchase terms including the intended price and how it will be paid out (often a mix of cash, stock, and earn-outs). Then begins the due-diligence phase(s) and work toward structuring the deal. The two companies ultimately come together with a purchase agreement.

As stated previously, the M&A market is hot right now, which has led to some firms overestimating their value, and asking

Above SSOE flowchart illustrating a typical acquisition process

“Each firm must make sure the other is aware of its capabilities and existing client relationships to properly leverage them.”

- Betsy Hurner

prices may not be realistic. For that reason, EBITDA — or earnings before interest, taxes, depreciation, and amortization — is used to properly benchmark a company because it is a more precise measure of performance based on a company’s trending profitability and is used to compare companies against one another or industry averages4 . The AEC market is still seeing a 15% to 30% increase in firm valuation over the past 18 months3 when factoring in these more precise metrics.

A selling firm is going to be most focused on protecting its remaining leadership, shareholders (as applicable), and overall employee talent. The value proposition matters. Before closing on any deal, both firms should understand the synergies driving the transaction because the real value from an acquisition comes from opportunities the firms can pursue jointly that they could not pursue separately. A business plan should be developed to guide the joint firm in pursuing and optimizing these opportunities. Just as important is the ability to retain talent following the acquisition. It costs a firm anywhere from $50,000 to $150,000 per person when there is employee turnover, so that can quickly add up and make the acquiring firm’s investment even greater or hurt the acquired firm’s performance metrics that were negotiated. Early conversations with HR regarding salary and/or title changes are important to mitigate turnover. A critical aspect of a successful acquisition is making sure expectations are managed in both companies. Our Chairman at S&W had individual conversations with all shareholders and described the inner workings of how and why they were considering this acquisition. We had imminent retirements that were going to leave voids in leadership, and the growth opportunities provided by SSOE (in addition to the benefits) eased our concerns, and we voted to move forward. What would the next chapters really look like?

With a better understanding of the M&A process and transition, how can a dedicated employee from an acquired firm, committed to leadership aspirations, not lose positioning as a “new” employee in the acquiring firm? It starts before the M&A process ever does. Show interest in company share ownership, if available, and purchase it when offered. Exercise your voice when it comes to the company — your concerns, accolades, critiques — because this indicates your professional investment is more than just a salary. If you establish this before an M&A scenario, your firm’s leadership will go to bat for you. In the new firm, communication is key. Each firm must make sure the other is aware of its capabilities and existing client relationships to properly leverage them; young leaders looking to move up within the new organization should lead the way on these communications. Engage yourself in business planning between the joint firms. Share how you’ve done things, but also be open to new ways of doing things. Be proactive with the new firm’s account managers and ask to come along on meetings to introduce the value you bring to the new firm’s clients. Make strides to engage with leadership and stand out through your efforts in the organization, but also in the greater industry with professional organizations, networking events, leadership development programs, conferences, etc. Adapting to a new culture can be challenging, but there is also opportunity to influence culture shifts. When you are moving up the leadership pipeline in a firm, adjusting to an acquisition can be challenging. However, the sooner you begin thinking of yourself as a leader and acting as such in the combined organization, the more successful the transaction will be, and the better you will be positioned to grow. Acquisitions can bring new opportunities, and the choice is yours to choose a growth mindset that focuses on this opportunity rather than dwelling on what could have been.

FOOTNOTES: 1 https://www.architectmagazine.com/practice/a-majorityof-architecture-firms-are-considering-mergers-andacquisitions_o

2 https://www.csemag.com/articles/weekly-merger-andacquisition-update-april-15-2022/

3 AEC Advisors presentation to SSOE Group

4 https://www.investopedia.com/terms/e/ebitda.asp

Laura Morton, AIA, NCARB

Morton is a senior associate and senior architect at SSOE | Stevens & Wilkinson in Atlanta. She is the young architect representative for Georgia and serves as the AIA Atlanta board secretary.