Twenty-two A/E predictions for 2022
Morrissey Goodale offers predictions for 2022 on topics including bitcoin, infrastructure, hiring and more.
The big issue with making predictions is it’s a no-win situation. If they come true, circumstances leading up to the event make them seem obvious. If they don’t, then we look like we don’t know what we’re talking about (see last week’s article It’s time for predictions, but first how did we do in 2021?)—which is (a) very on-brand and (b) not that great for our firm’s brand. So, on a risk-adjusted basis, all-in-all, making predictions—a bad idea. But, ‘tis the season, so here it goes. These are our team’s 22 predictions for 2022.
1. There will be two major infrastructure failures: Another climate event—similar to the Texas Ice Storm earlier this year—will cause another massive grid failure somewhere in the U.S. And in an ominous sign of what’s to come over the next decade, we’ll also see at least one important water or transit infrastructure or utility or EV charging system hacked and shut down. (Stafford Palmieri, principal advisor and Mick Morrissey, managing principal)
2. Go big or go home: Revenues among Engineering News Record’s Top 500 Design Firms will exceed $115 billion, eclipsing the record $104.8 billion set in 2020, with double-digit, year-over-year growth for the first time in the 21st century. This will be driven by consolidation among the industry’s largest firms, an evolving private equity ownership model that emphasizes scale, and an infrastructure bill that is expected to lead to an immediate $6 billion rise in A/E services output. (Jon Escobar, consultant)
3. Ring that bell! There will be at least one $350 million+ revenue A/E firm that goes public via IPO or special-purpose acquisition company (SPAC). This will be the beginning of a trend over the following 18 to 24 months in which we will see more $100 million+ A/E and environmental firms choose this option. Many of them will be capitalized by private equity prior to going public. (Brendon Cussio, principal consultant)
4. Brave New World 1: Urban planning and spaces will evolve. Neighborhoods will shift towards more mixed-use flexibility. There will be movement towards the development of more open space and creating “escapes” to connect with greenery. A shift away from mass reliance on public transportation and daily commuting will allow for even more green space planning and innovation, resulting in the reimagining of city space for people and not vehicles. (Tricia Washington, principal consultant)
5. Brave New World 2: Non-residential design and construction will trend toward repositioning existing assets vs. constructing new buildings as the world continues to rethink how people will live and work in a post-pandemic (or endemic) world. Residential investment will continue the double-digit percentage increases we saw in 2021, which, among other things, will make finding a reliable contractor to do your latest home improvement project a sustained exercise in futility. (Nick Belitz, principal)
6. Would you like that in Bitcoin or Dogecoin? More transactions in the A/E industry will take place using cryptocurrency. A/E firms will see more opportunities for its use in payments for their services, for paying their vendors and staff, AND for raising capital. Soon your AR and AP functions will be digitized—with resulting lower costs. (Morrissey)
7. The flight of the boomers: In part related to the above prediction—boomers don’t (actually cannot) understand crypto—and in part because they’ve been worn down by the pandemic and its aftermath, there will be a record number of baby boomers retiring from the industry in 2022. And with them will depart a whole bunch of the drama that has been perpetuated among A/E leadership teams for the past 20 years. (Morrissey)
8. Our electric and flying future: There will be more and more electric trucks on the road…and some hydrogen ones, too. Some of you will even see your first solar-powered production car on the road. Flying cars will move from the animated world of The Jetsons to the real world of your city. Oh, individual flight propelled by jet packs will also become a thing next year. (Mark Goodale, principal; Morrissey gets the assist)
9. Play to lose: Industry firms will get aggressive pricing projects, even pricing them to lose, as owners compete against each other to retain resource-constrained A/E firms as opposed to A/E firms competing for their projects. (Goodale)
10. General economy: GDP growth will be about 4%—robust in historical terms but a slowdown from 2021’s mark of about 6%—as supply constraints in both goods and workers keep a lid on aggressive consumer and business spending and also due to a withdrawal of government fiscal support related to the pandemic and higher taxes. (Belitz; Cussio gets the assist)
11. No new indoor malls: The contracting (really hemorrhaging) of retail space that was underway across the U.S. will accelerate even further as people realize that going to stores for staples and commodity goods amid their potentially unvaccinated neighbors is no fun, especially when they can order everything online. This will create opportunities for firms to answer the prayers of commercial landlords on how to repurpose strip malls and retail centers. The indoor mall will go the way of the dodo. (Palmieri and Belitz)
12. A record year for consolidation: The industry will see 430 transactions next year. And in another first for 2022, it will be the year in which there is at least one transaction in each of the 50 states—something that has never happened before. (Escobar)
13. Private equity to the rescue? Private equity and family office sponsors will continue consolidating the industry. Between them they will account for 50% of all domestic design and environmental firm mergers and acquisitions next year. They will be responsible for 9 in 10 of all recapitalizations of ENR Top 100 firms that take place in 2022. And by the end of 2022, one in three of the ENR Top 100 will be capitalized by private equity. (Nate Wentworth, Consultant)
14 Double-digit EBITDA multiples—you cannot be serious! The A/E industry will see record-setting M&A multiples in 2022 as publicly traded and overseas firms pile into the market and drive up firm valuations by at least 20% over last year. We will see deals in the teen-digit multiples on trailing 12-month EBITDA for design and environmental firms north of $50 million in revenue that are well positioned in the infrastructure, life sciences, and technology markets. Valuations for firms specializing in coastal engineering, renewable energy, and water and air pollution control will see major jumps. (Cussio, Escobar, Morrissey)
15. Infrastructure bill FOMO, part one: Publicly traded firms will double the number of their acquisitions in the U.S next year. They’ve represented a continually declining share of U.S. deals over the past decade—accounting for less than 9% this year. But their shareholders will demand they step up their M&A game to maximize the value they can gain from the infrastructure bill. They will face stiff competition from the current M&A leaders in the clubhouse—namely the financial sponsors. This competition is good news for sellers—it will drive firm values up to new records. (Escobar)
16. Infrastructure bill FOMO, part deux: The French love a good party. As do the Spanish. The British are always in for a knees-up. Don’t get me started about the Irish. As for the Danes—if there’s Carlsberg on tap, they’re there. Next year, overseas buyers—particularly from Europe—will double their M&A activity in the U.S. We’re at the threshold of a golden age of infrastructure development here—and global A/E players want in on the bacchanal. Expect new entrants in the U.S. market from South America and Asia. (Morrissey)
17. Double down on digital deals: There will be a continued push by A/E and environmental leadership teams for investments into technology and technology-focused companies to gain a competitive advantage. We saw eight such “tech” acquisitions in 2021. This number will double in 2022 and include firms that specialize in data management and intelligent technologies (AI, machine learning, IoT). (Cussio, Wentworth)
18. No place for Ebenezer Scrooge: In an extremely challenging hiring landscape, the emphasis will be less on recruiting and more on retention. The focus will shift towards keeping your existing people happy and in place. Companies will be investing in employee happiness programs and focusing on advancement, financial incentives, flexibility incentives, perks, learning opportunities, career advancement, and more. (Washington)
19. Competitive physical flexibility: The A/E industry will converge on a flexible workplace model. It will blend all of a firm’s physical and digital investments to meet enterprise (e.g., culture, social fabric) and project (e.g., profit, quality, creativity, customer experience) outcomes they (and their clients) need to achieve. Collectively, THOSE will determine when employees will be together physically and where (in a company-leased office or a coffee shop or on the beach) and when they can (and should!) be remote. (Morrissey)
20. AEWeWork: Firms of all types, but especially small ones, will begin exploring shared leases to split time using the same office space as the office-dwelling world fully commits to not showing up in the office five days a week again. Forever. (Belitz)
21. Finally, the results are in: Studies will show that firms that embrace the WFH or hybrid working models will perform better than their peers that do not in terms of profitability, utilization, and employee retention. (Wentworth)
22. Good insurance is a unicorn: The alternative delivery world will become even more risky. Finding the right insurance provider will be more important than ever. More owners will shift to Progressive Design-Build or an Alliance project-delivery model in order to share risks and make their projects viable. (Morrissey and mystery client)
This 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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