Architecture Firms: Selling Out or Selling Up?
Are you a buyout veteran yet? If the trend toward consolidation among architecture and engineering firms continues, any of us could face a sale or merger during our careers. I’ve witnessed the ebbs and flows of the architecture profession over the years. This recent trend of mergers and buyouts got me thinking about the multiple perspectives involved. As the profession ages and many firm owners are beginning to retire, it’s a trend that is likely here to stay for a while and has the potential to affect all of us, at every level of employment.
If you’re a firm leader, opportunities to solidify your legacy, accelerate your trajectory or simply convert your equity are enticing. Whether you’re looking to monetize a lifetime spent building your practice from that one-room office to a proud portfolio of loyal clients or looking to graduate from the regional shortlist and promote your team to international players: marrying up is an attractive strategy.
But if you’re a less tenured employee, your new “blended family” status might leave you wondering what’s next. Will my adopted siblings like me? Will I have my own room? And how are we dividing chores?
We spoke with a mix of local professionals about their mergers and transitions. Here’s a sampling of our Q&A:
Q: Were you able to transition internally or did you look to outside investors?
Nan Anderson, FAIA, principal, Anderson Hallas Architects: Anderson Hallas has been purchased from within the organization. Over about a 10-year period, we identified and developed our next generation of leaders. Through a third-party valuation, we established the fair market value for the firm and now adjust that annually. An incentivized bonus process, for principals to buy shares of stock in the firm, felt right to us and that’s the process we’ve employed.
Adam Harding, 2020 AIA Colorado president; partner, Roth Sheppard Architects LLP: We completed an internal transition over three years. We purchased percentages of ownership each quarter based on net income cash-on-hand bonuses, based on the previous year’s valuation.
Carl Hole, AIA, principal, Stantec Architecture Inc.: Denver-based RNL was acquired by Stantec, a national multidisciplinary firm with multiple locations. RNL’s projects have been financially responsible and our culture aligned with Stantec’s culture, so this made the acquisition go easier. RNL was employee-owned, and although this added challenges in the acquisition, everyone with stock received value for their stock whether they were with RNL for several years or several decades.
Anonymous: If you have a succession plan, you are less vulnerable to an outside buyout. An employee stock ownership plan takes time, potentially a decade of continuous contributions to build up enough value to transition to employee ownership.
Anonymous: We were interviewed for what we thought was a project partnership. As the conversations became more candid, we realized we were being courted for a merger. At the time we felt it was in our best interest to back away.
Q: Are you keeping the talent you hoped would stay? Is staffing for projects easier?
Carl Hole, AIA: Staffing hasn’t really changed; we are in control of our business center. We have visibility into other centers who may have available staff, or need our help, and we can reach out when needed. Since our design cultures aligned, we have been able to provide new opportunities for our staff that we would not have had as just RNL.
Adam Harding, AIA: We are a small firm, so the staffing hasn’t changed really from before to now. We are getting better talent each year.
Q: How did it work culturally and creatively?
Carl Hole, AIA: Stantec and RNL leadership were very focused on maintaining RNL’s culture. RNL has always been a leader in sustainability, which was one of the reasons we were acquired. Creatively, we now have more opportunities for bigger projects on a global platform.
Adam Harding, AIA: I think our process has changed for the better, more collaborative, more buy-in from the staff. They feel ownership in the projects in a different way than before. The office culture has improved: We have made an effort to get the right people in the right seats and made sure that culturally the people in the office work well together.
Anonymous: Being absorbed into a larger organization was a shift from a service-oriented boutique practice to an efficiency-based business model. Culture shock was unavoidable and we lost key staff.
In an internal transition, the key is planning. Best case, the outgoing owners will get value from their life’s work and the incoming owners will be left with sufficient capital to maintain the business. In a buyout, open-minded due-diligence and frank assessment of financials, culture and priorities are crucial. If both firms are like-minded in their business strategies and approach to culture and staffing, the new relationship will be more successful from the start.
Published in the March 2020 issue of Building Dialogue.