In a Strange Place: Confidence and Uncertainty

In a Strange Place: Confidence and Uncertainty

Confidence. As a CEO, you know how important it is. You want to feel it—about your decisions, your people, your future, your markets. You want to see it—in your managers, your branding, your clients. You want to project it—to your investors, prospects, and peers. And, by and large, for over a decade, you’ve felt pretty darn confident—about yourself, your firm, the future.

And that feeling of confidence has largely been shared by your peers in the industry (with maybe the exception of those CEOs who found themselves overly exposed to the corporate/office market post-pandemic). That confidence has been built on the received wisdom of certainty. Certainty in a future of well-funded clients. But, as the industry approaches the year’s halfway mark, there are some indicators that “confidence” is beginning to leak from the industry and is being replaced with something different—uncertainty. 

That’s the early read from the attendees at this June’s Western States M&A and Business Symposium. Consistently, this group of folks—whose thoughts and perspectives we’ve been compiling since March—provide a great opportunity to take the industry’s pulse halfway through the year. And based on what they’re telling us, there are some changes afoot. 

1.  First a word on who’s coming to Las Vegas: Seven in ten attendees are industry CEOs and/or C-suite executives. One-fifth are M&A executives (mostly from larger firms), and the balance are industry investors. Ninety-three percent are from U.S.-headquartered firms. Forty percent of the firms in attendance are from the Western states. The AE firms in attendance are split evenly between those with revenues greater than $100 million and those below. About one-fifth of the attending firms are focused on the buildings sector, while the balance are more horizontal infrastructure and environmental services focused. Just over half of the attendees are representing employee-, partner-, or ESOP-owned firms. A quarter are representing firms that have a financial sponsor. These are the folks giving us a mid-year read on how things are shaping up for the industry in 2025.

2.  Confidence shift: Just 60% of symposium attendees expect 2025 to be a better year for their firms than 2024 was. This is a significant departure from past years and even from earlier this year. It’s the lowest level of confidence expressed by attendees at any of our symposiums since we started tracking this sentiment. And it’s a dramatic decline since our March symposium when 85% of attendees expected this year to be better than last. Thirty-five percent expect this year to be comparable to last year. Five percent anticipate this year will be worse than last year. We’ve never seen this number of attendees concerned about a year-over-year decline before. 

3. Uncertainty enters stage left: For the first time, “market uncertainty” ranks equally alongside “finding talent” as the #1 challenge for attendees—each cited by a little over 30% of attendees. This is three times the number who cited this in March. Things are changing quickly. Year-to-date market volatility/declines are weighing on the minds of AE industry decision-makers. From “economic uncertainty” to “government uncertainty” the concerns expressed by attendees run the gamut. Some attendees are concerned about their markets being negatively impacted by actions and changes at the federal level. Others are concerned about what a new tariff environment will mean for their clients and ultimately their AE firms. The mood is not helped by the news that the economy contracted in Q1 or the fact that last month saw the AIA/Deltek Architecture Billings Index continue its steady decline since September 2022—its 27^th decline in 30 months.

4. Mixed messages: In this second quarter, we are hearing this theme of “uncertainty” directly from a growing number of clients and M&A candidates in our advisory and M&A work. But here’s the curious thing. While one in ten of them can speak about actual negative impacts on their businesses as a result of recent economic or political turbulence (federal contracts being delayed, university capital projects shelved), nine in ten have seen zero effect. In fact, most clients continue to see an unaltered, unaffected pipeline of funding for projects. However, the uncertainty of “what’s next” is weighing on many. Some are hearing rumblings from developers about new projects potentially being paused until there is more certainty around the tariffs and the impacts on construction costs. But nothing yet. Others worry about DOGE-driven changes to federal acquisition regulations. They worry about it, but they have seen no changes…yet. Many firms are coming off a great 2024 with strong balance sheets. They are buoyed by robust project pipelines and backlogs. Their leaders have every reason to feel confident—which they do. But they also are feeling more and more…uncertain.

5. Growing through uncertainty: While there does appear to be a growing sense of uncertainty among industry leaders, there is one group that is prepared to take advantage of this dynamic. We continue to hear expressions of confidence and commitment to growth—organic and via M&A—from larger and more diversified industry players that have greater flexibility in their business models and have the capital and resources to pivot more quickly to capture growth markets. For a primer on how you can continue to be successful through and beyond 2025, check out Mark Goodale’s excellent “6 Ways to Lead Through The Fog of Uncertainty.”

6. Infrastructure dominates growth opportunities: Half of the symposium attendees see the success of their firms in 2025 tied directly to growth in the national transportation, water, public works, and energy/utilities markets. This is down from over two-thirds in March. In terms of “hot” buildings markets in 2025, 6% of attendees see growth coming from data centers—this matches the percentage seen in March at our Miami symposium. Interestingly, 15% of attendees see growth in the commercial/retail markets—up from 5% in March. And then it’s pretty evenly split with 5% anticipating growth in health care, another 5% in industrial, and yet another 5% in education.

7. New era, new demands: One-fifth of attendees are seeing new client demand for “technology solutions” including digital services (see below) and AI. Another 20% cite new demands in the areas of advisory and program management. Fourteen percent cite client demands for new “data insights.”

8. Making connections: Two-thirds of the attendees are planning to make at least one acquisition before the end of the year. One-fifth of the attendees are planning to sell or recapitalize by the end of the year. (The networking on the Las Vegas Strip will likely be fast and furious with some significant consequences three to nine months down the road.)

9. A maturing digital business model: Just 63% of the attendees either will or will possibly generate revenues through digital services and/or products in 2025—down from 70% at this time last year. That’s still an increase from prior years when only about half of attendees indicated digital competencies and offerings. Firms have rapidly incorporated digitization initiatives to meet client demands, improve service offerings, and increase profits. 

10. AI arrives: Three-quarters of the attendees (up from 50% at the same time last year and 60% in March) are using AI in their businesses. Thirty percent of those firms are using it for marketing, with another 15% deploying it to gain efficiency in operations. One-fifth are using AI on specific projects for clients. 

11.  Raise and budget outlook for 2025: Eight in ten of the attendees are forecasting 2025 raise budgets in the 1% to 5% range. Sixteen percent are budgeting raises in the 6% to 9% range. Three percent are budgeting no salary increases—the first time that we have seen this response from attendees at any of our symposiums. Seven in ten are anticipating 2025 bonuses in line with last year, while a quarter anticipate an increase in bonuses. Just 3% anticipate no bonuses this year. There will never be “enough” talent to meet industry needs.

We will have a much better understanding of how changes in Washington and market volatility are impacting our industry when we get to June. Right now, it appears that many CEOs are expressing concerns and uncertainty about the state of the industry, while also feeling bullish about their current financial condition and confidence in their backlog. It’s a weird mix to be sure. 

We’ll provide a real-time State of the Industry presentation at the Western States M&A and Business Symposium on June 11-13 at the beautiful five-star Wynn Las Vegas. The symposium is your opportunity to network with over 200 AE industry executives, investors, and experts at this time of market flux. 

Also, this year’s M&A Best Practices Award will be presented at the symposium. If you would like your firm to be considered for the M&A Best Practices Award, we invite you to complete the simple application form here. The application should take no more than 20 to 30 minutes to complete. The Award recipient will be notified in early June.

If you want to discuss any AE industry topic, contact Mick Morrissey at [email protected] or 508.380.1868.