Seven things to consider when selling your AE firm
Selling your AE or environmental firm can be a daunting process
Selling your AE or environmental firm can be a daunting process. Most owners only do it once, although there is an exclusive “club” who have sold, then bought back, then resold their firms—making money on each transaction—with generally a buyer of European extraction on the other side of the deal. But I digress (not for the first time, I’ll admit).
Sellers who get the best deals for their firm (highest values, superior terms, optimal integration) know one thing above all else. And it requires an out-of-body experience.
The blind spot: Too many sellers think that they are selling their civil engineering firm, or their architecture practice, or their environmental business, or their surveying and mapping outfit. Or they believe that they are selling access to their people, clients, or intellectual property. While all of those are technically true, none come close to capturing what buyers are actually buying. These sellers have a massive blind spot about what their real value is in the eyes of the buyer. And that blind spot equates to “money left on the table” (a phrase that I personally believe needs to be driven out of the vernacular—Digression #2).
Think different: When selling your firm, you need to unlearn how you’ve traditionally referred to the business. You have to be prepared to throw away your “elevator speech.” All that muscle memory of how you’ve referenced your experience from the inside needs to be undone. Instead—like every good rugby move—you need to get outside, and into the minds of the buyers. You need an out-of-body experience. It’s like “Freaky Friday”—but for transactions and without Jamie Lee Curtis.
The “Aha!” moment: This occurs for sellers when they step into the shoes of the buyers. They see themselves in a totally different way—in a whole new light. They understand what it is the buyers are “getting” or “achieving” through the acquisition. It’s that moment when Neo recognizes the Matrix for what it is and that he’s The One. And it’s at that “Aha!” moment when the path forward for sellers becomes clear.
Seller, meet your buyers: The M&A market today is dominated by two types of buyers. The first are brand-name AE and environmental firms—for the most part listed on the ENR Top 500 Design Firms and ENR Top 200 Environmental Firms. Let’s call this first group “Strategics” for want of a better description. The second are private-equity groups or family offices (PEFOs) that are looking to enter the AE and environmental industry through a platform in one fell swoop or a series of close-to-simultaneous acquisitions that will then be rebranded and combined.
How the Strategic sees you: Not surprisingly, every Strategic buyer has a strategic plan. (If they don’t have one (ask them for it), then don’t sell to them because it won’t end well. In fact, it probably won’t happen at all as they are most likely a Tire Kicker (or Time Waster) disguised as a Strategic.) That strategic plan will have a vision for (hopefully) profitable growth designed to increase the value of the firm. That growth will come from geographic expansion, or new competencies/services, or new end markets. And that, dear seller, is how a Strategic buyer sees you. You’re a way for them to make progress against their strategic plan. You’re a “goal” or “objective.” Part of a “strategy.” Someone assigned your firm as their “action item.” So, your job is to figure out where you rank in terms of the priorities and timing of the buyer’s strategic plan. If the buyer’s top strategic priority is higher education in the Midwest and you’re a college and university designer in Chicagoland that works for Northwestern and Loyola, then bingo—that’s your “Aha!” moment.
How the PEFO sees you: The PEFO is looking to invest capital—either theirs or someone else’s—in the AE and environmental industry. That decision was made after about three years of studying this industry to validate/confirm an “investment thesis.” (Note to self, three years of study should result in the conferring of some sort of “Understanding the AE Industry” degree—with a graduation speech.) Your firm (brand) fits into that thesis. Yours is one of many firms that the PEFO will invest in (acquire) over the next several years to build a larger entity that will be more valuable than the sum of its parts. Your firm is—to put it indelicately—either a platform or a building block. And in this market, both of those are valued by assigning a multiple to your trailing 12 months of EBITDA. The more attractive you are in terms of the thesis, the larger you are, the better performing you are—the higher the multiple.
Sellers need to think like Harley Davidson: Harley makes great motorcycles. But Harley doesn’t sell motorcycles. It sells a lifestyle that their customers want. And it monetizes every aspect of that lifestyle from the bike to the bandana. To be a successful seller in this market, think like Harley. Understand how the potential buyers of your firm view you and what they need/want. And then negotiate with that knowledge.
Morrissey Goodale is a CFE Media content partner.
Original content can be found at Morrissey Goodale.
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