AE Valuation & Ownership Transition Advisor: Volume 9 Issue 1

Ownership Transition Follies: Three Cautionary Tales

A trio of case studies highlights pitfalls to avoid when transitioning ownership

To the uninitiated, ownership transition in architecture, engineering, and environmental consulting firms is rarely straightforward. Smooth transitions require both years of advance planning and agile decision-making when unexpected challenges inevitably arise. 

We love helping firms develop seamless ownership transitions that are both financially and professionally rewarding for everyone involved. But a mishandled ownership transition can lead to frustration, financial strain, and stagnation. Based on Morrissey Goodale’s deep industry experience, these three cautionary tales (names have been changed to protect the guilty) prove why thoughtful planning is non-negotiable. 

Case #1: ZenithLine Architects—A Legacy of Sweetheart Deals

Ten years ago, ZenithLine Architects pulled off what seemed like a win-win ownership transition. The 30-person firm’s outgoing owners sold their shares at book value and then bonused the full value of the shares back to the buyers to make it easy for them. Fair market value? Never heard of it. Had they checked, they’d have found the stock was worth much more, even after an internal discount.

Fast-forward to today: The firm has 100 employees, and the next generation is supposed to step up. Cue the drama:

• The new crop of potential owners is balking at the now sky-high stock price.
• They want the same sweetheart deal their predecessors got.
• Bonusing shares? Not happening—it would cost the firm millions.

Now the firm is stuck in limbo. No one wants to be the first to take a fair-market deal. Negotiations drag on endlessly. Growth stalls, and morale takes a hit.

Lesson: Get it right the first time. Structuring deals based on FMV ensures fairness and sets a sustainable precedent for future transitions.

Case #2: H2OPlex Consulting—No Succession Plan, No Successor

Twenty-person water engineering firm H2OPlex Consulting owes its success to a brilliant principal engineer who’s been running the show since day one. But his leadership style—equal parts micromanagement and indecision—has made it impossible to build a bench of rising leaders.

Despite his best mentoring efforts, the cycle is predictable: talented staff leave, frustrated by a lack of autonomy. The few who stay can execute the work but have no clue how to bring in business. And yes, he’s still the sole decision-maker and shareholder.

Retirement is looming, but here’s the rub:

• The firm’s reputation and revenue are tied entirely to the owner.
• Internal transition? There’s no one with the capabilities and relationships to take over.
• External sale? It’s a tough sell when buyers see a one-man show.

The result? The owner is stuck and so is the firm.

Lesson: Develop a leadership pipeline and share the business knowledge. Without it, you’re building a house of cards.

Case #3: RouteLine Engineers—Failure to Provide Value for Stockholders

RouteLine Engineers, a 300-person highway design firm with a majority ESOP and external shareholders, seemed like a model of success—until you looked under the hood. The issue? Stockholders got nothing tangible for their shares.

Here’s the playbook they followed:

• No dividends were paid.
• Cash was funneled into leadership bonuses, ESOP share buybacks, and strategic growth.

When it came time to sell outside shares, buyers weren’t interested. Why invest in stock that’s little more than a placeholder? The ownership structure, once an asset, turned into a liability.

Lesson: Shareholders need tangible value. Otherwise, you’re selling an empty promise.

Ownership transition is one of the most critical processes for the long-term success of an architecture, engineering, or environmental firm. These cautionary tales highlight why planning, transparency, and fairness aren’t just nice-to-haves—they’re essential. Learn from these mistakes and pave the way for future generations of leaders.

If you have ownership transition questions, Morrissey Goodale’s experts can help. To connect with Morrissey Goodale Principal Advisor Alexander Tepper, email him at [email protected].