These Are Days
I was never a big fan of 10,000 Maniacs. (They didn’t even register a song on our Ultimate #AE and #Environmental Industry Playlist.) But their 1992 hit, and the title of this week’s article, almost perfectly sums up where our industry is. There’s never been a better time to own and run a design or environmental firm. “These are days you’ll remember.” But just how good are they? And what lies ahead?
Those are just two of the topics we’ll be exploring at next month’s Texas and Southern States M&A, Strategy, and Innovation Symposium at the gorgeous Post Oak Hotel at Uptown Houston. Our symposia always provide us with a timely way to take the pulse of the industry. And by hosting three symposia a year (Miami in March, Las Vegas in June, and Houston in October), we’re able to glean a close to real-time quarterly view on industry performance, condition, and outlook. Here’s an advance look at the sentiments of the almost 200 already registered attendees—and how they differ from earlier in the year.
Compensation pressures ease: For all the details on this—one of the hottest topics in the industry these days—check out Mark Goodale’s article below this week. He’s got the goods. But the headline is that the super-heated labor market of 2022 has seen some cooling this year, and leadership teams are budgeting accordingly (per our latest survey of Word on the Street readers). Firms have dialed back their raise and bonus budgets from earlier in the year. I’m not sure this is a good move. Granted, we’re still a step-function above pre-pandemic raise and bonus budgets. But the conditions we faced before and during the pandemic that resulted in record raises and bonuses in 2022 still exist. We still don’t have enough professionals and tech folks to meet the current demand for services. And this situation will be exacerbated when IIJA money flows into the system (hopefully sometime this millennium). But for now, firms are dialing back their raise and bonus budgets, while also putting in place more stringent return-to-office (RTO) policies. I expect the combination of both will result in a spike in voluntary turnover rates—especially in large metros.
2024? Bring it on: Seventy-eight percent of the attendees for our upcoming symposium believe that 2024 will be better for their firms than 2023. This is in line with the sentiments expressed back in March in Miami—when 76% anticipated a better year ahead. And it’s a rebound from the 69% who expressed this level of optimism in Las Vegas just last June. (If you remember there was a LOT of chatter about an economic recession late spring/early summer that I believe contributed to this mindset.) Firms that are expressing concerns about 2024 tend to be in the Northeast and tend to have an overexposure to buildings in the corporate and commercial sectors. That’s where we certainly continue to see some softness and layoffs.
It’s all about the people: Question: What’s the biggest challenge facing the industry? Answer: Finding and keeping talent. That’s according to 61% of the Houston symposium attendees. This is down from 69% in June (Las Vegas) and 66% in March (Miami). So, while talent management is still the #1 challenge for leadership teams around the country, its relative importance and urgency has declined over the year. Why? I think for two reasons. First, the industry as a whole has gone from storming to norming in terms of leveraging existing technologies to maximize efficiency. Meaning we’re generating more revenue and profit with fewer people. This provides a pressure release valve in terms of talent management. Meaning we’re relying less on people to do the work. (Megan Miller of Deltek and our own Nick Belitz will be covering this during their State of the Industry presentation in Houston.) Second, there’s relative weakness in the commercial and corporate buildings sectors and some headwinds in the higher education sector that are muting demand for talent. Combined, these factors have contributed to a different hiring environment in the second half of 2023.
This is the age of the expanding man: Or should I say, “expanding industry.” Sixty-two percent of Houston attendees see growth—either in terms of share of specific end-markets or geographies as the greatest untapped opportunity for their firm. We see this ALL the time in our strategy work. Almost every leadership team is focused on growth and positioning themselves to take full advantage of all the opportunities they see now and anticipate in the future. This growth mindset has only gotten stronger in recent months, up from 57% of attendees in Las Vegas.
Acquisitions as a way of life: With growth-driven strategic plans mandating top- and bottom-line expansion, and talent hard to find quickly enough to meet demand, it’s no surprise that many of this year’s Houston attendees are planning to make an acquisition in 2024. Sixty-nine percent of attendees see at least one transaction in the next calendar year. (Many of them are hoping to meet potential partners at the Houston symposium.) This “lean in” to acquisitive growth is an increase from the just 50% of attendees in Las Vegas who anticipated closing a transaction in 2023. The 450 domestic transactions we expect in calendar 2023 represent a decline of some 5% over the record pace of 2022, and the acquisitive sentiments expressed in Las Vegas directly correlate with that dip. The increased interest in acquisitive growth that we are seeing with Houston attendees suggests that 2024 will see a rebound in industry consolidation.
Which acquirers are making the most positive impact on the industry? We’ll be announcing the recipients of the Best Post-Transaction Performance Award in Houston next month—recognizing those acquirers that improve the fortunes of the firms that they invest in. There’s still time to submit an application for the award. So, if you’ve made an acquisition that you’re proud of, and you believe it merits consideration for this award, then we invite you to begin the application process here. Once you’ve gathered all of the information required, the application should take no more than 30 minutes to complete. The window for applications is open until October 6. If you have any questions about the award, please contact [email protected].
We’re excited to once again co-host the Texas and Southern States Symposium with our friends at ACEC Texas. I look forward to seeing you there next month.
To complain to Mick Morrissey about his taste in music or to connect with him about anything else, email him at [email protected] or call/text on 508.380.1868.