Word on the Street: Issue 159

Mid-Year M&A Round Up (With Soundtrack)

The Morrissey Goodale Buy-Side and Research teams met last week in Boston for their monthly in-person get-together to discuss how we can better support our clients and serve the industry. It was great to welcome our teammates from North Carolina, Maine, New York, Georgia, and Illinois to Beantown. And while a ton of work got done, there was also a lot of noshin’ and groggin’ going on.

The Morrissey Goodale Buy-Side and Research Teams take a well-earned break between meals.

Between preparing for the opening games of the FIFA Women’s World Cup (Go Ireland!) and debating how many majors Carlos Alcaraz will win over the next decade, the team prepared an in-depth analysis of how the AE and environmental industry is consolidating in 2023. Here are some of their findings (with accompanying soundtrack and artists):

Slowhand (Eric Clapton; Pointer Sisters): If you’ve been thinking that industry consolidation has slowed this year, then you’re to be commended on your excellent intuition. The 226 domestic deals reported in the first six months of the year represent a 14% decline over the red-hot pace for the same period in 2022.

Hot, Hot, Hot (The Merrymen, Arrow, also covered gloriously by Michael Scott): While not at the blistering pace of 2022, the 226 domestic deals year-to-date represent the second-hottest H1 on record—eclipsing by 4.6% the 216 domestic transactions recorded in the January through June period of 2021.

Big Time (Peter Gabriel): While deal volume may be down overall, there are bigger buyers driving consolidation this year. The median acquirer through the first six months of the year had revenues of $91 million—up about 50% from the median size of $60 million for the same period last year.

All the Small Things (Blink-182): While buyers may be bigger this year, sellers have gotten smaller. The median-sized seller for the first six months of this year had revenues of $3 million and 19 employees, down from $3.22 million and 21 employees for the same period last year. 

Glad All Over: (The Dave Clark Five): The interstate deal activity index (the percentage of deals that take place across state lines) is an excellent indicator of how confident and optimistic (happy!) buyers are feeling about their businesses. (When it approaches 50%, then the industry is in recession and buyers are risk-averse, generally sticking close to home. Above 60% and the industry is doing well and buyers are investing across state lines.) Buyers right now are feeling remarkably bullish. The interstate deal activity index was a record 70.8% for the first half of the year, up from a very strong 70.3% the same period last year. 

Don’t Bring Me Down (E.L.O): The influence of employee-owned buyers in shaping the future of the industry continues to wane. They accounted for just 56.2% of all domestic acquisitions in the first half of the year, their lowest percentage on record, which has been in continual decline.

4 American Dollars (U.S. Girls): Private equity- and family office-backed buyers continued to move up in weight classes. They accounted for 34.5% of all domestic transactions in the first six months of the year, up from 29.3% during the same period in 2022.

Margaritaville (Jimmy Buffett): Just as it did in 2022, Florida saw the most M&A activity of any state in the first half of this year. We reported 30 transactions from January through the end of June in the Sunshine State this year. That’s down from 32 for the same period last year.

Lights (Journey): California saw the second-most consolidation in the first half of 2023 with 22 transactions announced. That’s down from 29 for the same period in 2022.

Laredo (Band of Horses): Texas saw 20 transactions in the first half of the year, down from 29 for the same period last year.

More, More, More (Andrea True Connection): These are just a few of the highlights from the report that our research team will be making available at the end of this month. Make sure to check our website or follow us on LinkedIn to get the full report when it becomes available. 

You can contact Mick Morrissey at [email protected] or 508.380.1868.

Want to Help? Stop Giving Advice

The vast majority of people I come across in the AE industry want to do the right thing. I see them helping each other all of the time without giving it a second thought—often by giving advice. But unfortunately, the advice rarely helps. It’s not that the advice is necessarily bad, mind you. It’s often just not wanted or needed. Take the following exchange, or example…

Stan: I can’t seem to get Jennifer to engage. She disappears for days at a time, her camera’s on during meetings, but you can tell she’s looking at something else on her screen, and I don’t even know what projects she’s working on anymore.

Laurie: Well, Stan, here’s how I handled the exact same thing with Peter. I sat him down and had a heart-to-heart with him. I told him his good points, then I showed him where his performance is lagging, and that really got the message across!

Stan: Well, that’s nice, Laurie, but my situation is a little different. Peter’s brand new to the industry, and he’s more likely to…

Laurie: Oh, and here’s what else I did, Stan, and it worked like a charm. I scheduled once-a-week check-ins and…blah, blah, blah…

By the time Laurie is 10 seconds into giving her advice, Stan has already formed multiple reasons as to why Laurie’s approach won’t work or doesn’t apply. And while Laurie prattles on, Stan’s brain boards a plane to Bermuda. 

And that’s the last time Stan brings up any problem to Laurie. Opportunity lost.

In our innate desire to solve problems (AE professionals are born problem-solvers), we jump right to the solution and sometimes even take possession of the problem. All the while, the person who came to us seeking help simply wanted to be listened to. 

If you really want to help, set aside your instinct to immediately solve problems and become a coach, instead. A good coach will listen (not for agreement, but rather for full understanding) and ask a lot of questions, which is what helps people get “unstuck”.

Through listening and asking good questions, you will bring about the following for the person being coached:

1. Cognizance

Cognizance, or awareness, is like opening a garage door and flooding it with light. The tools, bikes, toys, and ladders all become instantly visible—and with enough light, you can see what shape they are in—dusty, rusty, or otherwise. The same kind of thing happens when someone is struggling with a particular issue or problem—a coach asks a good question, and suddenly the world shows up in a different way. Heightened attention results in a sharpened view of the issue. To start a coaching conversation on the right foot (get permission to coach first, by the way), ask questions like: “So what is going on?” “What do you think about the situation, and how does it make you feel?” “What is your take on the problem?” “What reason or reasons do you think are causing the problem?” With this last question, help the person you coach identify root issues by asking the “Five Why’s”—why, why, why, why, and why. 

2. Choice and Focus

More focus is brought to the things that matter and less is spent on background noise that only serves to distract from the goal. A hockey goalie focuses on the puck, not on the position of his stick. The pro bowler is focused on a certain pin, not his release point. It’s about getting someone’s attention on what matters most. Questions like “What do you really want?” and “What do you want to achieve?” will bring about this clarity and reality in the person you coach.

3. Control

When we have it, we feel good. When we don’t have it, we feel lousy. When challenged about what we control and don’t control, possibilities emerge. Questions like “What is out of your control in this situation?” “What are you trying to influence?” and “What is in your control that you are not controlling?” (to be asked precisely in that order) will help the person you coach observe their own blindness. When asked these questions, some people may lie to themselves at first—but simply let their response hang in the air long enough for their defensiveness to abate. Simply listen. And when in doubt whether to speak or keep listening, keep listening.

4. Trust in “The Natural” 

“Chicken Little” (the sky is falling) and “The Natural” (I’ve got this, no problem) live in all of us. When Chicken Little is in the driver’s seat, your inner voice is often filled with doubt and questions about choices and what should and shouldn’t be done. When Chicken Little is driving our bus, it gets stuck. However, the more trust we can put in “The Natural,” that core part of us where all of our upside, capability, and desire resides, the better our performance and the outcomes. This isn’t the kind of thing the person you coach can build up with a whole bunch of dedication and practice. It’s much more about letting go and allowing it to happen. And when this trust is allowed to surface and dominate, Chicken Little is barely a whisper. To help the person you coach see this dichotomy in himself or herself, ask questions like “What do you notice about the conversation going on in your head when you are on your game?” and “What do you notice about the conversation going on in your head when you misfire?”

Remember, the coach is not the problem-solver. The person you coach drives the decisions and the results—and learns in the process. Keep the problem where it belongs by asking questions in place of giving advice. 

For coaching guidance, call Mark Goodale at 508.254.3914 or send an email to [email protected].

Market Snapshot: Lodging (Part 1)

Weekly market intelligence data and insights for AE firm leaders.

Overview

• The lodging category of construction includes hotels, motels, resort lodging, tourist courts and cabins, and similar facilities. Almost 98% of these structures are privately owned. 
• Based on 2022 data from the U.S. Census Bureau, the lodging category represents about 2% of total nonresidential construction. 

Market Size

$18.6 billion* 
*Based on 2022 Value of Construction Put in Place (CPiP) (U.S. Census Bureau) 

Hot Spots

• The hotel industry was severely impacted by the COVID pandemic. The category saw the sharpest decline in construction spending in 2020, dropping 15% from a record $33.5 billion in 2019. In 2021 it took an even worse hit, falling 36%.  
• Although 2022 construction spending was still well below 2019 levels, there was a 2% year-over-year increase in design and construction spending in lodging structures. As of this past May, spending is up 29% compared to the same period last year, and construction starts are forecasted to be up 22% by the end of 2023. 
• Despite the decrease in corporate travel caused by the prevalence of remote work, leisure travel has recovered (and is booming this summer). Nonetheless, some hospitality projects may end up not being executed or pushed out due to the current economic environment with higher interest rates, tighter borrowing standards, and hotel staffing shortages.  

In next week’s issue, we’ll look at trends and hot spots for this sector. To learn more about market intelligence and research services from Morrissey Goodale, schedule an intro call with Rafael Barbosa. Connect with him on LinkedIn. 

Weekly M&A Round Up

Five domestic deals reported: Last week we reported deals in TX, TN, NY, WA, and OR. Once again there was another deal in Texas, the 23^rd deal in the Lone Star State already this year. Additional global deals were reported in The Netherlands and the UK. You can check all the week’s M&A news here.