A Texas-Sized “Thank You” to Houston
When 200 AE industry executives and investors from the U.S., Canada, Europe, and Australia come together to learn, share best practices, and network in one of the world’s greatest (and fastest-growing) cities, you know it’s going to be a terrific time. And that’s exactly what it was last week when we hosted our Texas and Southern States M&A, Strategy, and Innovation Symposium at the stunning Post Oak Hotel at Uptown Houston.
Here are some of our team’s takeaways and observations from the Symposium:
Dr. Perryman sets the stage: If you’re running a business in Texas or are considering entering the Texas market and you’re not following Dr. Ray Perryman and his team at The Perryman Group, then you’re doing it wrong. Perryman’s opening keynote was—as always—as enjoyable as it was informative. Here’s what our own Nate Wentworth, senior consultant, took away from Dr. Perryman’s talk: “Dr. Perryman’s opening keynote addressed the broader economy and set the tone for the two-day conference with cautious optimism noting that while we are technically in a recession (two consecutive quarters of negative GDP growth), the strong labor market continues to bode well for the economy in general and for our industry in particular. It was eye-opening to learn that Texas accounted for most of the nation’s population growth last year! Those in attendance agreed that the industry is well-positioned in the near-term with record backlog and not enough talent to get the work done. The challenge of finding qualified talent is going to continue to be a concern for firms that need to burn through their record backlogs that continue to grow. Firms that used to turn to ‘acquihires’ to solve talent challenges are finding that these sellers are also coming with record backlogs of their own and not enough staff to do the work.”
The 2022 M&A scene is lit: Jon Escobar, vice president, delivered some jaw-dropping stats in his “2022 M&A Trends” presentation. For example, did you know that since the beginning of 2021 publicly traded AE industry acquirers have bought twice as many firms with 25 or fewer employees as they have firms of 100 employees or more? The “acquihire” model is real. Jon is anticipating 500 transactions of AE and environmental firms in 2022—another record year of consolidation. Prior to the Symposium, his team surveyed 70 of the industry’s most active buyers to get a read on their priorities for 2023. The top six areas they’re going to be targeting are: (1) transportation, (2) water and wastewater, (3) environmental, (4) MEP, (5) geospatial/surveying, and (6) architecture. When it comes to Texas and the Southern states, most of the consolidation is—not surprisingly—concentrated in the Texas Triangle. Who’s the most aggressive buyer of design and environmental firms in Texas and the South? It’s other Texas firms. Since 2018, Texas buyers have been behind over 30% of the acquisitions in the South.
When women rise, we all rise: The terrific Gen Oraa, partner at CohnReznick, co-moderated our “Advancing Women in the AE Industry” session with our own Tricia Washington, vice president. The guest of honor was Monica Silver, president of 600-person CobbFendley (Houston, TX) (ENR #184), who generously shared stories of her journey from project engineer to president of one of the industry’s leading firms. The networking session was designed to be the spark for participating firms to strategize on how to advance women in the industry and share ideas and perspectives. The attendees discussed thoughts around where the AE industry can impact more women staying and rising in the profession, given the fact that women tend to leave the profession at a much higher rate than men.
Innovate or die trying? Six important themes emerged from the “Innovation—From Concept to Market” panel moderated by Stafford Palmieri, principal advisor. Executives from AECOM, BST Global, WPM Technology, and Earthvisionz spoke to (1) the “corporate antibodies” that will conspire to kill innovation, (2) the importance to innovate “from the edge” and work to the center, (3) the gross understatement in saying that developing a software product is hard and expensive, (4) the need to secure a financial partner to take your software product to market, (5) the preference for the agile development of software—where you have your customers do the testing and validating, and (6) how “featuritis” (your internal team adding features that the market doesn’t need) is a colossal waste of time and energy that can single-handedly kill any chance of taking your concept to market (see theme 5).
Ad Astra: Morrisey Goodale principal Nick Belitz’s discussion around current M&A multiples elicited some audible gasps—and a few groans from the attendees. It was generally good news for sellers and equity holders and spoke to a more challenging market possibly for buyers. Will this market last? As Nick likes to say, “It depends.”
Paying it forward: I had the honor of co-moderating the “Strategy for the Modern AE and Environmental Firm” panel along with the multi-talented Karen Erger, senior vice president and director of practice risk management for Lockton. CEOs from four of the industry’s leading firms—STV Inc. (ENR #35), Huitt-Zollars (ENR #160), CobbFendley (ENR #184), and CDM Smith (ENR #23) shared their knowledge, insights, and advice on industry and market trends, strategy, and strategic planning and best practices. We’re deeply appreciative that Greg Kelly, Bob McDermott, Monica Silver, and Tim Wall—four industry leaders at the top of their games—took the time to share their perspectives with our guests.
The pain of acronyms: A lively “Sellers Best Practices” panel included some humorous discussions around the painful topics of quality of earnings and net working capital—more commonly referred to in the M&A world as QofE and NWC. The panelists shared how important it is for sellers to be aware of these concepts early in any deal negotiations.
Attendee sentiment—cautiously optimistic: We know our own Jeff Lookup, vice president, as a serial networker. No one works the room better than him. Here’s some of what he was hearing from his conversations with execs and investors this week: “Many of the firms I spoke with have some concern relative to market conditions in 2023. Specifically in the residential, commercial, and industrial vertical infrastructure market. But they are all busy and have a significant amount of backlog moving into 2023. In general, the attendees in the public infrastructure markets reported that they have multi-year backlogs and are feeling very confident. But they are also ‘watching for changes in the wind direction from the federal government.’ Even with this cautious optimism, I did not find any attendees that were looking to pull back on their M&A program. I also heard from several buyers that much of their M&A effort is now focused on adding staff capacity in niche services (electrical, mechanical, structural, and survey). In general, they don’t care where the staff are located because they have become comfortable with the hybrid/remote work model. Several firms told me they are targeting MBE/WBE firms for this capacity. Buyers are not as concerned today if they lose some of the capacity/backlog due to loss of the special designation.”
Time is of the essence—or is it? Time was a central theme of the “Buyers Best Practices” panel. Panelists were asked if they were speeding up or slowing down their acquisition processes. The consensus was neither. Buyers are staying the course on their acquisition strategy with refinements along the way. When asked about predictions for the future, the panelists were firmly committed to “more of the same” with ongoing strategy reviews to ensure that acquisitions were pointed towards “smart growth” versus “just growth” and a universal agreement that no matter how far along you are in the deal process, it’s never too late to walk away.
Expertise counts: “The 500 Club” of M&A experts brought a wealth of experience about how deals are getting done and integrated in 2022. George Christodoulo, Dave Sullivan, Kent Collier, and our own Brendon Cussio, vice president, shared legal, tax, risk, and business best practices related to getting deals done.
Couldn’t join us in Houston? Not to worry. We’ll soon be opening registration for our Southeastern States M&A,
Strategy, and Innovation Symposium. The venue will be the beautiful Mandarin Oriental in Miami, and the dates will be March 23 and 24, 2023. This will be another power networking and learning event for AE and environmental industry execs and investors.
Sadly, missing from our team in Houston this year was our partner Mark Goodale.
Questions, thoughts, ideas? To connect with Mick Morrissey, email him at [email protected] or text/call at 508.380.1868.