Word on the Street: Issue 207

Early Findings From the 2024 Best Post-Transaction Performance Award Applications

Where things stand

The application window for this year’s Best Post-Transaction Performance Award opened two weeks ago. Since then, we’ve received multiple applications in each of the three size categories of (a) acquisitions of firms with greater than $50 million in revenues, (b) acquisitions with between $10 and $50 million in revenues, and (c) acquisitions with less than $10 million in revenues. Last year’s Award recipients in each of these size categories were, respectively, TRC Companies (Windsor, CT) (ENR #16), Salas O’Brien (Santa Ana, CA) (ENR #54), and Englobe (Montreal, Canada).

Early findings

The Acquisition Performance Indicator (API) results from the initial applications are on par with—and in some cases—even higher than those reported last year. In 2023 the average API across all three size categories was 2.2. The median API was 1.56. What is particularly notable with the early applications is the strength of the revenue, backlog, and voluntary turnover API elements of their transactions. As a reminder, here are the findings in these three API elements from the 2023 Best Post-Transaction Performance Award applications:

• Boosting sales through acquisitions: One of the big lessons learned from last year was just how good acquirers are at increasing backlogs through their acquisitions. On average, industry acquirers have seen the backlogs attributable to their acquisitions grow 44% within a year of the transaction. 

• Top-line growth: On average, acquirers have been realizing a 33% increase in revenues attributable to their acquisitions one year after completing transactions. When you combine the average increase in backlog by acquisitions (44%) with the increase in revenues, you can see why some firms are spending relatively less on their corporate marketing staff and systems and investing relatively more in their corporate development groups. Simply put, acquisitions are a great (some might say the greatest) way to drive top-line growth. 

• Employee engagement: This was probably the biggest eye-opener from last year’s results. On average, acquirers have been seeing voluntary turnover rates decline by almost one-fifth a year into their transactions. One reason for this is that most acquisitions are creating more opportunities for employees post-transaction. Another is that acquirers are bringing improved benefits to employees at a lower cost to them. 

2024 Award eligibility and application

Eligibility for the Award is limited to firms that have acquired an AE or environmental consulting firm between January 1, 2018, and August 1, 2023. We’ve designed the application process to be simple, fast (it should take no more than 30 minutes of your time), and confidential. It requires no proprietary financial information about your firm.

All applicants will receive a benchmarking report comparing their acquisition performance to those in their chosen size category.

So, if you believe that an acquisition you’ve made deserves recognition by the industry, then we invite you to begin the application process by clicking the button below.

The window for applications is open until Friday, September 13. 

Awards ceremony and industry recognition 

This year’s Awards will be presented at the Texas and the South M&A and Business Symposium at the five-star Post Oak Hotel at Uptown Houston on October 17. Awards will be presented to the acquirers that report the highest APIs in each of the three size categories. 

In addition to the Awards and the accompanying industry recognition, Morrissey Goodale will make a $1,000 donation to an AE industry-related 501(c)(3) organization chosen by each recipient. We will also feature each Award recipient in an upcoming edition of Word on the Street.

If you have any questions about whether your firm is eligible to apply for the Award or about the application process itself, please contact our Awards department at [email protected]. 

The Art of Transition—Mastering Client Relationships and Sales

I see it almost daily with my strategy clients—as seasoned AE principals inch closer to retirement, the spotlight shifts to up-and-coming leaders who must prove they have what it takes to keep the business thriving. But such a transition is fraught with challenges and opportunities, both of which hinge on the new leaders’ abilities to build and maintain client relationships and effectively sell their firm’s services.

The stakes are significant

The transition of leadership within AE firms isn’t just about handing over the keys to the office. It’s about preserving the firm’s legacy, maintaining its reputation, and ensuring its future success. For many firms, long-term client relationships are the lifeblood that sustains their operations. When experienced principals retire, they often take with them decades of rapport and trust built with clients. This trust isn’t easily transferable and can significantly impact the firm’s continuity.

Furthermore, the ability to sell work goes beyond mere business development. It encompasses understanding client needs, demonstrating value, and positioning the firm as the best solution provider. New principals must navigate these waters deftly to avoid disruptions in the project pipeline and ensure sustained revenue growth.

So, what’s at stake? Quite simply, the firm’s future. Successful transitions mean retaining loyal clients, securing new projects, and fostering a culture that values continuous growth and adaptation. On the other hand, a poorly managed transition can lead to lost clients, decreased morale, and, ultimately, a decline in business.

Building client relationships is a personal thing

Building and maintaining client relationships in the AE industry isn’t a one-size-fits-all endeavor. Each client is unique, with specific needs, preferences, and expectations. Up-and-coming principals need to understand this diversity and tailor their approaches accordingly. Here are some key aspects of this challenge:

1. Established principals often have personal relationships with clients that span years, if not decades. These relationships are built on trust, mutual respect, and consistent delivery of quality work. New leaders must find ways to honor these relationships while gradually introducing their own styles and approaches.
2. Clients need to trust that new principals are as capable and reliable as their predecessors. This trust isn’t given freely; it must be earned through consistent performance, transparency, and open communication.
3. Every client has unique needs and expectations. New leaders must invest time in understanding these nuances, whether through direct conversations, feedback mechanisms, or careful observation of past interactions.

Requisite skills and behaviors

So, what does it take for new principals to successfully build client relationships and sell work? Here are the essential skills and behaviors that can make the difference:

• Understanding client needs starts with empathy. New principals must be able to put themselves in their clients’ shoes and view projects from their perspectives. This requires active listening—truly hearing what the client is saying and addressing their concerns with genuine interest and care.
• Clear, concise, and transparent communication is vital. This includes everything from initial pitches and project proposals to regular updates and handling any issues that arise. Effective communicators can articulate the firm’s value proposition, manage client expectations, and navigate difficult conversations with grace.
• Building a robust network is essential for any principal looking to secure new clients and projects. Creating this resource involves attending industry events, participating in professional organizations, and leveraging social media to connect with potential clients and industry influencers.
• Understanding the business side of the AE industry is crucial. New principals need to be aware of market trends, financial metrics, and competitive positioning. This knowledge allows them to make informed decisions, identify opportunities, and effectively pitch their firm’s services.
• Clients value partners who can offer solutions to their challenges. New principals must be adept problem-solvers, capable of thinking on their feet and providing innovative solutions that meet client needs and exceed expectations.
• Trust is built over time through consistent performance. New leaders must demonstrate reliability in every interaction—meeting deadlines, delivering quality work, and following through on commitments.
• Up-and-coming principals need to build their own brands within the firm and the industry. This involves showcasing their expertise, thought leadership, and unique approach to client service. A strong personal brand can enhance the firm’s reputation and attract new clients.

The journey from plain ol’ principal to trusted partner

The journey from being an up-and-coming principal to becoming a trusted partner for clients is not a sprint; it’s a marathon. It requires dedication, continuous learning, and a genuine passion for the work. Here’s a roadmap to guide new principals on this path:

• Seek mentorship from experienced principals who can offer insights and advice based on their years of experience. Learning from their successes and mistakes provides valuable lessons and shortcuts to building strong client relationships.
• Proactively engage with clients beyond the confines of specific projects, including informal check-ins, inviting clients to industry events, or simply staying in touch to understand their evolving needs and challenges.
• Always look for ways to add value to the client’s business, whether through innovative solutions, cost-saving measures, or insights that help them achieve their goals. When clients see you as a valuable partner rather than as just a service provider, the relationship deepens.
• Establish a feedback loop to understand what clients appreciate and where there’s room for improvement. Constructive feedback is a powerful tool for personal and professional growth and helps tailor your approach to better meet client expectations.
• The AE industry is constantly evolving, with new technologies, methodologies, and client expectations. New principals must stay abreast of these changes and be willing to adapt their strategies and approaches accordingly.

The payoff

When new principals master the art of building client relationships and selling work, the payoff is substantial. Strong client relationships lead to repeat business, referrals, and a stellar industry reputation. Effective sales skills result in a steady stream of projects and revenue, providing the financial stability needed to innovate and expand, and ultimately transition ownership and leadership.

Comments? Questions? Text Mark Goodale at 508.254.3914 or email [email protected].

Market Snapshot: Architecture Billings

Based on the latest architecture billings report from the American Institute of Architects (AIA) and Deltek, we see no major changes in the current business environment for architecture firms. However, recent news and employment data point to higher chances of Fed rate cuts in September, which may help improve conditions for firms later this year and into 2025. 

Billings for firms in the Northeast have been on an upward trend since the beginning of this year, ending the second quarter with an index score of 52.2. All other regions ended the second quarter below 50, which represents a decline from activity in the previous month. 

During the second half of 2023 and into 2024, the Midwest performed above other regions. However, in the last three AIA/Deltek Architecture Billings Index (ABI) readings, firms in Midwestern states reported weaker conditions. 

The weak conditions in the architecture industry are being experienced across all three major sectors, with a steeper decline observed in June for firms specializing in commercial and industrial projects. 

To learn more about market intelligence data and research services offered by Morrissey Goodale, schedule an intro call with Rafael Barbosa.

Weekly M&A Round Up

Four new domestic deals announced, including one transaction in Texas: Last week we reported on the 31^st deal of the year in the Lone Star State, with the strategic integration between McDonough Engineering (Houston, TX) and industry leader LJA Engineering (Houston, TX) (ENR #67). Additionally, four global deals were reported in Singapore, Australia, The Netherlands, and Croatia. You can check all the week’s M&A news here.