The digital future is arriving
This week, Morrissey Goodale provides A/E leaders perspective on how the industry continues to be recapitalized by growth-focused, efficiency-seeking private equity.
If you’re like most A/E firm leaders, you’ve spent the last 18 months mostly in quadrant 1 of the Steven Covey Time Management Matrix: urgent and important. Overwhelming demand for your firm’s services. Not enough people to do the work. Not enough time in the day. Exhausted but rewarded with record shareholder value. You’ve been “doing.” But while you’ve had your head down leading your firm to record profitability, the industry has been slowly changing around you.
What’s going on in quadrant 2? While you’ve been busy in quadrant 1, other industry leaders and pioneers have been hanging out over in quadrant 2: important not urgent. They’ve been planning for — and executing on — investments to digitally augment or transform their businesses.
This is not your father’s acquisition: These strategic investments take the form of internal developments and strategic acquisitions. The former tend to take longer to come to market and have a relatively low success rate. The latter allow for immediate market impact and come with integration and branding challenges. The latter also provide the clearest examples of how fast the industry is digitizing.
Digital acquisitions on the rise: Prediction #15 in the 21 Predictions for 2021 anticipated more tech, software, and digital acquisitions by A/E firms than ever before. And sure enough, that’s what we’re seeing—domestically and overseas.
Transformation in every sector and every service: This year alone we have seen over 30 such digital and tech acquisitions, including those by domestic and global industry leaders Parsons, TRC, Versar, Terracon, Tetra Tech, SAM Companies, RSK Group, AFRY, Aurecon, Ramboll Group, and AESG.
2018 – the tipping point (redux): Last week we covered some telling stats on the rapid pace of industry consolidation as follows:
- There were 2,723 A/E and environmental firms that were sold or merged since 2010.
- Of those transactions, over 40% have taken place since 2018.
- Starting in 2018, the average annual deal volume jumped 53% from 202 to 311.
Buried in these stats is the doubling of annual digital, tech, and software acquisitions since 2018. They are like the market for electric vehicles – small, growing quickly, and transformational.
End game: As the industry continues to be recapitalized by growth-focused, efficiency-seeking private equity, we can expect to see a steady increase in digital and tech acquisitions. This combination of capital and technology likely foreshadows the replacement of the common CEO refrain “our people are our greatest asset” with “our brand, digital capabilities, and our people are our three greatest assets.”
This article originally appeared on Morrissey Goodale’s website. Morrissey Goodale is a CFE Media content partner.
Original content can be found at www.morrisseygoodale.com.
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