Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they examine the key takeaways from M&A symposium and how it relates to the A/E industry as a whole.
Morrissey Goodale is providing A/E leaders with news and perspective on COVID-19 and its impact on the industry. This week, they examine the key takeaways from M&A A/E symposium and how it relates to the A/E industry as a whole.
Last week, we hosted the first ever combination Virtual Reality and Livestream events for A/E industry executives. Our New Reality: 2021 Edition broadcast was on Tuesday. On Thursday we hosted our 2021 Q1 M&A Symposium. Not only did we get some awesome feedback from attendees (the inspiration for this week’s title) we also learned a thing or two along the way. Here are some nuggets from the week that was.
The year is off to a good start: Most firms are reporting a solid first quarter with backlog holding up. The Texas freeze hit first quarter performance in the state equating to a week or so of lost production. Higher education is a mixed bag depending on region and the institution’s brand and/or endowment. There’s quite a bit of “wait and see” to how this sector plays out post-COVID. The travel, leisure and hospitality sectors are coming back online… fast. Firms in the food and beverage manufacturing sector are seeing strong demand.
Hope springs eternal: Attendees were cautiously optimistic about messages coming out of Washington about an infrastructure stimulus package. Infrastructure firms were particularly interested in the progress being made on Capitol Hill of a $35 billion drinking water and wastewater bill. (It should be noted that there was decidedly more cynicism about passage of any infrastructure stimulus by the older executives in the VR auditorium.)
Four post-pandemic trends: The A/E industry will be re-shaped by 4 post-pandemic trends – (a) Industry recapitalization, (b) Innovation through digitization and AI, (c) Reimagined relationship with talent and (d) The great U.S. migration.
Four firm types and strategy sets for 2022: There are four A/E firm types headed into the post pandemic world – and for each there is a distinct strategy set to be deployed for success and value creation as follows:
| Firm Type | Strategy Set |
| The Unicorn | Press Your Advantage |
| The “Have Not” | Pivot to Growth |
| The Dreamer | Expand the Brand |
| The Traditional | Invest to Transform |
A big bounce in confidence: Inter-state M&A activity is off the charts. The percentage of deals taking place across state lines (buyer in one state acquiring a seller headquartered in another) stands at over 68% for the year. This speaks to the optimism of buyers and their determination to deploy their capital to diversify geographically.
Same probability it’s raining in Ireland right now: 80%. Four out of five acquisitions or recapitalizations of ENR Top 500 firms are completed by a private equity, family office, or a publicly-traded firm. The pure employee ownership model of industry leaders continues to evolve and is being supplemented by outside, non-employee equity.
Consolidation momentum: Early last week we crashed through 100 deals for the year– the fastest ever we’ve hit that milestone. This follows on the heels of the hottest 3rd and 4th quarters on record in 2020 (77 and 80 deals, respectively.) It sure feels like we’ve moved into a new, hyper-active phase of consolidation.
As predictable as death and taxes: As a mature industry, two defining characteristics of the A/E world are business failures and consolidation. Two thirds of A/E firms never make it past the founders and the stats get progressively worse after that. They either go out of business or they sell to provide continuity to clients, opportunities for employees, and liquidity and/or safety for owners.
Private equity hold times shortening: With a number of high-profile A/E recapitalizations in the news recently, it would appear that our industry is seeing a similar trend to that reported in Pitchbook that showed average hold time of PE investments declining to under five years.
Digital dealmaking: Deal processes are unlikely to ever fully return to the way they were pre-pandemic. The most prolific buyers have gotten more comfortable leveraging technology to conduct meetings, due diligence, and other deal processes remotely. Call it the 80/20 rule – 80% of what used to happen in-person can be done faster and cheaper digitally. The movement will lower overall deal costs – a good thing for everybody.
U-S-A! U-S-A! After three consecutive years of decline, the percentage of U.S. deals involving an overseas buyer has ticked up in 2021 to 10%.
This article originally appeared on Morrissey Goodale’s website. Morrissey Goodale is a CFE Media content partner.
