The surge in M&A activity in the AEC industry continued through the third quarter of 2007 and into the current month. The 184 deals recorded year-to-date eclipse last year’s record of 163 transactions and there is good reason to believe that deal activity in both November and December will push the industry over 200 deals for the year as we originally forecasted in January.

There are three distinct trends emerging in the industry’s M&A activity this year.

Globalization of the AEC industry: Over one-third of the deals so far in 2007 have an international aspect to them. With the dollar at an all time low against the Euro, it’s not surprising that almost 13% of all deals in 2007 involve a domestic firm selling to a non-US firm. However, a greater percentage (21%) of transactions year-to-date didn’t have any US-firm involvement at all, reflecting strong growth in the global economy, particularly in emerging markets. Australian, New Zealand and Canadian firms have been particularly active this year. The float of 21% of the shares of New Zealand engineering firm Opus International Consultants (the former national Ministry of Works) on the public market should result in further global acquisition activity emerging from the Southern Pacific. Meanwhile, exchange rates and a robust domestic M&A environment have contributed to relatively few deals— seven to be exact— involving U.S. firms buying off-shore targets.

Wall Street loves designers!: This year the capital markets have driven a greater degree of consolidation in the industry than ever before, and their full impact in shaping the industry has yet to be played out or fully understood. Through the first nine months of the year, over 20% of AEC deals have been initiated by publicly traded firms; typically larger industry brand names. SNC-Lavalin (Montreal, Quebec) has led the charge with 11 transactions thus far in 2007. Other highly active publicly traded acquirers in 2007 with five or more deals each include AECOM (Los Angeles, CA), Genivar Income Fund (Montreal, Quebec), and Stantec (Edmonton, Alberta).

Follow the people: Domestically, the demographic trends of migration to Sunbelt states and California continue to make these regions a hotbed for consolidation. Of the almost 90 exclusively domestic (one U.S. firm purchasing or merging with another) transactions, almost a quarter involve firms in Florida, Arizona, Texas, or California selling to out-of-state firms. In larger part, this trend is driven by Mid-west, Rustbelt, and Northeast firms desiring continued transformation of their business models by acquiring their way into high growth areas. It’s a risky strategy fraught with cultural and financial risks. But for many firms, it’s preferable to facing the challenges of an industry hurtling toward commoditization in a low growth environment.

Fourth Quarter and 2008 Outlook: We anticipate that the fourth quarter will see approximately 60 – 70 transactions announced reflecting the three major trends we’ve discussed here. In 2008, the market can expect to see more deals of firms with Healthcare and Life Sciences experience. Florida and the Southeast will see an uptick in activity and international buying and selling will increase significantly.

The Victim Complex—Don’t Take the Easy Way Out
- MARK GOODALE

vic-tim [vik-tim]
	noun
1.	a person who suffers from a destructive or injurious action or agency
2.	a person who is deceived or cheated, as by the dishonesty of others or by some impersonal agency

No, you’re not imagining things. The “victim complex” is all too real, and it has stubbornly manifested itself within the ranks of A/E and environmental firms across the industry. What’s a victim complex? Bluntly stated, it’s someone who unfairly blames others for his or her own failures. Perhaps you’ll recognize a few of these “victims” yourself:

The Frazzled Division Manager: You are one of the busiest people in the company with 17 direct reports. Every day is a fire fight. Loyal, doggedly determined, and highly trustworthy, your inadequate staff is always dragging you down. And that’s why your revenue will be flat again this year.

What you need to hear: You are probably a great doer, but accomplishing through others is where you struggle. First, reorganize your group so you have no more than four or five direct reports. Second, challenge these “lieutenants” to take on some of your responsibilities. In fact, don’t be afraid to ask or even push it on them! Chances are they are starving for the opportunity. And if they truly are not cut out for the job, what are you going to do about it? It’s your responsibility to build your own team and make it work.

The Neglected Marketing Director: Bright, passionate and creative, you simply can’t get anyone to listen to you so you spend most of your time cranking out proposals and generally staying out of the way.

What you need to hear: You’d better get out of the order-taking mode or you’ll never help your company the way you could and should. Do what it takes to be at the strategic planning table and contribute to business unit plans. They need your input and leadership, so you can’t afford to be timid. Start reporting to the senior management team regularly on marketing and business development activities—after all, if you can’t sell yourself internally, leadership will have a hard time believing you can sell the firm externally.

The Wayward Branch Office Manager: Sure, your office has struggled. But you’re never kept “in the loop”, you don’t get any help from the home office, and you have no idea what’s going on with the direction of the firm. Most of all, you resent writing big checks every month for corporate “support.”

What you need to hear: If you want to be in the loop, get in the loop. Pick up the phone twice a week and give the president a call. Schedule it if you have to. And challenge marketing, human resources, financial, and operations leadership to be your partner in building your area of the business. Tell them exactly what you need and extract it. Corporate functions will always be imperfect. But it’s up to you to leverage what does exist the best way you can.

The Besieged President: You are the heart and soul of the company. Everyone in the firm wonders what’s going to happen when you finally retire. You want to leave in five years, but you have significant doubts that any of your partners have what it takes to keep it all together.

What you need to hear: Time to get it in gear. If you don’t have a Chief Operating Officer, now is a good time to put your strongest person in that role. The position oversees the operations of all business units and is ultimately responsible for how work is produced. It’s a potential grooming position for the next leader. Also, get your second-tier leaders an executive coach. Leadership seminars are fine, but two-day programs seldom churn out stars. They need to practice leadership skills in real time, not just listen to someone talk about them. But if the cream doesn’t rise soon, you are likely going to have to seek an external buyer. It may not be your first choice, but it might be the only way you can get your equity out of the firm and provide your people with better opportunities and a brighter future.

If you think about it, a lot more could be in your control if you’d just give yourself permission to act. Have comments? Drop us a line!