The remaking of the A/E industry accelerates
Morrissey Goodale's A/E Q1 industry report shows record increase in consolidation and recapitalization. The full report is expected to be released later this week.
Morrissey Goodale’s A/E Q1 industry report shows record increase in consolidation and recapitalization. The full report is expected to be released later this week.
The pandemic has been the great accelerator of trends. In our industry it vaulted technology from “nice to have” to “need to have” (see digitization, video communications, VR/AR mixed reality, Artificial Intelligence, etc.). Within the period of thirty days last Spring, it renegotiated the legacy firm/employee relationship from “You work in this office during these hours” to “Where and when would you like to work and would you like us to send you one or two monitors?” And, it has swung open the flood gates to a tidal wave of consolidation and recapitalization, as we’ve seen in this first quarter of 2021.
A sneak preview: In this Friday’s M&A Update, we’ll be releasing our review, commentary and full infographic of Q1 A/E industry M&A. We’re giving readers of Word on the Street a early look today. The stats speak to an industry hurtling toward an entirely new business model.
More records smashed: With 108 transactions announced in Q1, not only was it the most active first quarter on record, it was also the hottest three months ever. The pace of industry consolidation has doubled since 2017. From everything we are seeing we expect the pace to only increase. The industry may very well be on track for its first ever year with 400-plus deals.
Destination California: For the past three years, Texas has seen more deals than any other state. Not so this first quarter. With twenty-one announced deals, California led the U.S. in terms of consolidation. The Golden State accounted for almost one-fifth of all transactions in the first three months. Florida was second with twelve deals. Texas was a distant third in the single digits with eight transactions.
Priority #1 – geographic growth: Acquisition activity taking place across state lines hit an all-time high in Q1. Over two-thirds of transactions involved a buyer in one state entering — or growing its existing business in — another state. This is the highest level of cross-border activity on record. The industry is expanding in response to robust nationwide demand and buyers are feeling confident about the future. (Pro tip for sellers – this stat means that your future buyer is likely from out of state.)
Median seller size ticks up: After steadily – if slowly – declining over the past three years, the median seller size in Q1 increased to $3.2 million and 22 employees. Last year it stood at $2.5 million and 18 employees. We’re seeing a corresponding uptick in valuations as the median deal size increases. Seven ENR Top 500 design firms sold or were recapitalized in the first quarter. On a related note, the median buyer size in Q1 was $89.4 million in revenue – about where it has been for the past three years.
Capitalization shifts: Almost one-third of all transactions in the first quarter involved recapitalization by either a private equity fund or a family office, or an acquisition by a firm backed by one or the other. Private capital’s remake in the industry continues unabated. It’s now the capital model for thirteen percent of the ENR Top 100 Design firms. One in ten first quarter transactions involved a publicly traded buyer. We’re seeing a definite uptick in terms of interest on the part of “the publics” in the U.S. market.
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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