Debunking merger, acquisition myths by the numbers

Morrissey Goodale discusses architecture engineering firms mergers with statistics and what they mean for the future.

By Morrissey Goodale February 12, 2024

“Mergers and acquisitions are at record levels!” “The ‘big boys’ are buying up everyone!” “Venture capital is buying up the industry!” “M&A is only for the giant firms.” “Acquisitions are killing good firms!” No. Definitely not. Wrong. What, now? And “you don’t know what you’re talking about.” There’s a ton of myths around AE industry M&A. What’s actually happening in reality can be found in the numbers.

427: That’s the number of U.S. AE and environmental firm transactions announced in calendar 2023. Deal activity last year was actually down 11.2% from the record 481 transactions in 2022. So no, M&A is not “at record levels.” But it’s fair to say that the industry is experiencing consecutive years of consolidation at unprecedented levels. For each of the past three years, over 400 firms have been acquired. This is a rate never seen before and double that of just a decade earlier. Given the pace of year-to-date activity (the trailing 12-month deal volume average is still down but trending up), we fully expect 2024 to be yet another 400-plus year.

300: No, not the awesome 2006 Leonidas vs. Xerxes smackdown at Thermopylae movie. This 300 is the number of acquirers and investors—from 10 countries—that combined to make the 427 acquisitions and recapitalizations in the U.S. last year. Combined, the last three years have seen not only 1,350 transactions across most (not all) of the 50 states, but also an influx of capital from Canada, the EU, the UK, and the Middle East into the design and environmental consulting professions.

$95 million: That was the size of the median acquirer last year—meaning that the median buyer falls in or around the ENR Top 250 range. So no, industry M&A is far from just the “big boys” buying everyone. Indeed, the most active acquirer last year (and recipient of this year’s Most Prolific and Proficient Acquirer Award as part of our Excellence in Acquisitive Growth Awards series) was Bowman Consulting (Reston, VA) (ENR #87). The firm made 11 acquisitions last year and has already announced an acquisition in 2024. (To read our recent interview with Bowman’s CEO and executive VP of M&A, click here.)

53%: That’s the percentage of transactions made by employee-owned or ESOP/partial-ESOP firms last year. These types of firms still account for more than half of all acquisitions in the industry. So no, venture capital is not “buying up” the industry. (More on this later.) That said, the percentage of transactions completed annually by employee-owned or ESOP/partial ESOP firms has been steadily declining over the past decade (from 78% in 2013) even while the number of acquisitions has been steadily increasing. The bottom line is that employee-owned and ESOP-owned firms are steadily becoming less of a factor in industry consolidation.

39%: Almost four in ten transactions last year were completed by either a private equity sponsored acquirer or through the recapitalization of a design or environmental firm by a private equity sponsor. Venture capital was involved in zero, none, zilch. (In our work, we find that many clients still mistakenly conflate venture capital with private equity when embarking on explorations of their recapitalization strategic planning.) The involvement of private equity in the recapitalization of the design and environmental consulting industry has increased steadily over the past decade, growing from just 7% of transactions in 2013. Based on everything we’re seeing in our M&A advisory and capitalization strategy work, 2024 will yield another 100-plus industry firms acquired or recapitalized by private equity.

Bonus numbers section

16: That’s the number of ENR Top 500 firms that sold or recapitalized in 2023. That’s around 3% of that grouping of the largest design firms in the country. Since 2021, 12% of the ENR Top 500 have sold or recapitalized, and 90% of those transactions have involved private equity (see above).

$3 million: That’s the median-sized seller in the industry. On the one hand that shouldn’t be surprising given there are so many firms of this size in the industry. On the other hand, it’s a number that always surprises, given the conventional wisdom that M&A exclusively involves the largest firms. It does not. And possibly the most encouraging message from this statistic is that small firm owners can sell or merge and use M&A as a way to liquidate their equity or solve their ownership transition conundrum or accelerate their growth—or all three.

Double: In our research for our Excellence in Acquisitive Growth Awards series, we found that on average, acquirers have been doubling the profits of their acquisitions a year after completing the transactions. More stats from our research in bullets 9 through 11 below.

44%: On average, acquirers have seen the backlogs attributable to their acquisitions grow 44% within a year of the transaction.

33%: On average, acquirers have been realizing a 33% increase in revenues attributable to their acquisitions one year after completing transactions. When you combine the average increase in backlog at acquisitions (44%) with the increase in revenues, you can see why some firms are spending relatively less on sales and marketing staff and systems and investing relatively more in their corporate development groups. Simply put, acquisitions are a great way to drive top-line growth.

20%: On average, acquirers have been seeing voluntary turnover rates decline by almost one-fifth a year into their transactions. One reason for this is that most acquisitions are creating more opportunities for employees of acquired firms post-transaction. Another is that acquirers are bringing improved benefits to employees at a lower cost to them. So no, acquisitions are not “destroying good firms.”

If you’d like to dive deeper into the numbers and explore the state of industry mergers and acquisitions, then take a spin through our hot-off-the-presses 2023 AE Industry M&A Year-in-Review Report.

And if you’d like to get up close and personal and meet the executives, investors, and experts who are at the forefront of industry consolidation, then book your place at the Southeast M&A and Business SymposiumRegister today to reserve your spot.

Morrissey Goodale is a CFE Media and Technology content partner.

Original content can be found at Morrissey Goodale.

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