Word on the Street: Issue 212

The AE Industry Muscles Its Way Into 2025

Each of our three annual symposiums has its own unique dynamic and theme. The Southeast Symposium in Miami each March presents AE industry executives and investors with a first look at how the industry is performing that year. The Western States Symposium in Las Vegas in June allows decision-makers to check in on how the industry is performing mid-year and also experience global warming in real time. The upcoming Texas and the South M&A and Business Symposium provides a unique opportunity for industry executives and investors to reflect on how the industry has performed in 2024 compared to projections and provide a preview of 2025. 

We’ll be kicking things off in Houston next month with our “State of the Industry” presentation including up-to-the-minute hard data on industry financial performance (profits, utilization, revenues per employee, etc.), forecasts, financial condition (balance sheets), anticipated raises and bonuses, backlogs, and hot and cold markets for 2025.

We can get an even earlier read on how the industry is wrapping up the year and where it’s headed in 2025 from the executives and investors who will be in attendance next month in Houston. And based on what they’re telling us, all in all, 2024 is shaping up to be yet another blow-out year of growth and innovation for (most of) the industry while 2025 promises largely more of the same.

1. Who’s headed to Houston this fall? Three-quarters of the attendees are CEOs and C-suiters, 16% are M&A executives (mostly from larger firms), and the balance are industry investors. Attendance is split pretty evenly this year between firms of $100 million-plus in revenue (generally with a national or global footprint) and firms from Texas and the South with revenues of less than $100 million. About three-quarters of the firms in attendance are privately held by either their principals, employees, ESOP, or a combination thereof. About one in five are sponsored by private equity or a family office. The balance are publicly traded. 
2. Out like a lion: With the end of the year in sight, 79% of symposium attendees are confident that this year will be even better than 2023. This confirms the optimism that industry executives and investors expressed at the start of the year when some 78% of the Southeast Symposium attendees in Miami last March forecasted that 2024 would be another sizzling one. Eighteen percent of attendees expect that this year will be flat compared with last year. Just 3% are projecting a decline in performance year over year. 
3. As the world turns: Finding and retaining talent is still the number one challenge cited by attendees. But there appears to be a subtle shift going on. As the industry becomes more tech savvy and as the labor market morphs, the number of attendees citing talent-related challenges has dropped—for the first time ever—below 70%. Compare this to over three-quarters of attendees in Miami. Instead, challenges related to keeping up with demand—particularly in terms of acquisitions and technology deployment (16%) are on the rise.
4. Drive, hydrate, heal: No, not a new R.E.M. song. But the top three markets cited by attendees as providing the greatest growth opportunities for them in 2025. Twenty-seven percent of attendees see transportation as the hot sector next year. Twenty-three percent are all in on the water market for next year. Health care is seen as the hot growth market in 2025 by 11% of attendees. 
5. Continuing consolidation: Ninety percent of attendees have M&A of some kind on their minds in the next 18 months. They are either planning an acquisition or they are considering a sale or a recapitalization. This is not necessarily a surprise given the theme of the symposium. However, it’s also reflective of the current M&A environment where every CEO is receiving inquiries to sell or recapitalize almost daily. 
6. To infinity and beyond! Well, from paper to digital to AI to what’s next. “Digital” is now table stakes for many of the attendees—with over 50% of them generating revenues from digital offerings this year. The audience in Houston is fairly evenly split on AI deployment with about half indicating that they are using it in their businesses.
7. Another big year for raises/bonuses: Three-quarters of attendees are forecasting raises in the 1% to 5% range for the upcoming year. It’s notable that 16% are anticipating a raise budget in the 6% to 9% range. Almost 40% of attendees are anticipating higher management and staff bonuses next year.

So, it would appear that 2024 is going to play out as predicted—better than 2023, continued expansion and consolidation, with increased digitization and artificial intelligence deployment. With still not enough people to do all the work. And the 2025 preview would suggest that it’s more of the same—with the transportation, water, and health care markets providing massive opportunities for growth.

The Texas and the South M&A and Business Symposium—now in its 10^th year—is the destination for AE industry executives and investors to get a first look at how 2025 is going to play out, get the latest on trends and best practices, and network with over 200 decision-makers, investors, and experts from Texas, the South, and around the nation. Register today to reserve your place. 

To connect with Mick Morrissey, email him at [email protected] or text him at 508.380.1868.

From Oversight to Insight: Building a High-Impact Board of Directors

In the world of AE firms, the focus often zeroes in on design innovation, project delivery, and client satisfaction. But there’s another layer of leadership that’s just as crucial—if not more so—in steering the ship: the board of directors (BOD). Too often, the board’s role is misunderstood, leading to missed opportunities for strategic growth and long-term success. Let’s dive into what makes an effective board, the common pitfalls its members face, and why outside perspectives can be rocket fuel for a thriving firm.

The role of the board—more than just oversight

At its core, the BOD is responsible for providing governance, strategic direction, and oversight. Its members are the stewards of the firm’s mission and vision, ensuring that the company’s long-term goals align with its purpose, core values, and the evolving landscape of the industry. But too often, boards get bogged down in the day-to-day operational details that should be left to management.

This brings us to an all-too-common pitfall—boards that tackle operational or tactical topics rather than focusing on the big picture. When a board spends its time debating project budgets, HR issues, or marketing strategies, it’s straying into management’s territory. This not only dilutes the board’s effectiveness but also creates a bottleneck in decision-making.

How boards can elevate their focus

So, how can a board become self-aware of this issue and pivot to more strategic matters? The first step is acknowledging the problem. Regular self-assessments can help identify whether the board is spending too much time in the weeds. Once identified, the board can recalibrate its agenda, prioritizing strategic discussions over operational details.

A powerful way to enforce this shift is by setting clear boundaries between the roles of the board and management. The board should focus on long-term goals, succession planning, and risk management, leaving the tactical execution to the firm’s leadership team. By doing so, the board can guide the firm towards sustainable growth and resilience in a competitive market.

The responsibilities of the board—setting the tone for success

Understanding the board’s charge is crucial to its effectiveness. The board is not there to micromanage; its primary responsibilities include:

1. Strategic oversight: Ensuring the firm has a clear and viable strategy for growth and adaptation in the market.
2. Risk management: Identifying potential risks to the firm’s success and ensuring there are plans in place to mitigate them.
3. Financial stewardship: Overseeing the financial health of the firm, including approving budgets and financial statements.
4. Leadership succession: Ensuring there is a pipeline of leadership talent and a plan for smooth transitions.
5. Corporate governance: Upholding the firm’s values, ethics, and reputation in the industry.

The role of board members and the chair—a delicate balance

Each board member plays a vital role in maintaining the balance between governance and guidance. Board members are there to offer their expertise, ask the tough questions, and provide support to the firm’s leadership. They should bring diverse perspectives, drawing from their experiences to challenge assumptions and encourage innovation.

The chair, in particular, has a unique role. They must manage the dynamics of the board, ensuring that discussions are productive and focused on strategic issues. The chair is also responsible for maintaining a healthy relationship between the board and the firm’s leadership, acting as a bridge rather than a barrier.

Ingredients of an effective board member—more than just showing up

Being a board member is not just about attending meetings and voting on decisions. It requires a deep commitment to the firm’s success and a willingness to engage actively in its future. Effective board members are:

• Strategic thinkers: Able to see the big picture and think long-term about the firm’s growth and sustainability.
• Curious and inquisitive: Willing to ask questions and dig deeper into issues to fully understand the challenges and opportunities the firm faces.
• Collaborative: Able to work well with other board members, management, and outside stakeholders.
• Ethically sound: Committed to upholding the firm’s values and ensuring that decisions are made in the best interest of the firm and its stakeholders.

Rules of thumb for board size—less is more

When it comes to the size of a board, there’s no one-size-fits-all answer. However, there are some general guidelines. For most AE firms, a board of five to seven members is ideal. This size allows for a diversity of perspectives without becoming unwieldy. A smaller board can act more nimbly and maintain stronger cohesion, while a larger board might struggle with decision-making and engagement.

The benefits of outside board members—fresh eyes and unbiased opinions

One of the most valuable assets to any board is the inclusion of outside board members. These individuals bring a fresh perspective, free from the biases and internal politics that might cloud the judgment of insiders. Outside board members can challenge the status quo, offer insights from other industries, and help the firm avoid the echo chamber effect.

When selecting outside board members, it’s important to look for individuals who bring specific expertise that complements the firm’s goals. This could be in areas such as finance, technology, or market expansion. The key is to find someone who can add value to strategic discussions and help the firm navigate new challenges.

If your firm is looking to add an outside board member, or you’d like to serve on a board, click here to learn more.

The board as a catalyst for growth

Boards that fall into the trap of micromanaging operations miss out on the opportunity to guide the firm strategically. But with the right mix of effective board members, clear responsibilities, and a focus on long-term goals, the board can be a powerful catalyst for growth and innovation.

Want to talk? Call Mark Goodale at 508.254.3914 or email [email protected].

Market Snapshot: EV Infrastructure

The Biden administration recently announced additional funds towards electric vehicle (EV) infrastructure through the Charging and Fueling Infrastructure (CFI) Program. In this round, $521 million was allocated to 29 states for projects in communities and highway corridors (click here for a full list of recipients). 

We looked at U.S. Department of Energy (DOE) data on EV registrations and gathered a few insights:

• The U.S. added 1.1 million EVs in 2023, increasing the volume by almost 46% vs. 2022.
• California, Florida, Texas, Washington, and New Jersey added the most EVs last year.
• The highest year-over-year percentage increases were in North Dakota, Wisconsin, Maryland, Delaware, and New York.
• From a regional perspective, EV relative growth was the highest in the Mid-Atlantic (New Jersey, New York, Maryland, Pennsylvania, and Delaware) followed by Great Lakes (Illinois, Michigan, Ohio, Wisconsin, and Indiana).
• The U.S. added almost as many hybrid electric vehicles (HEVs), which represented an increase of 18% for the category.
• Southern states Louisiana, Mississippi, Alabama, and South Carolina had the highest percentage increases for HEVs.

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

Busy week for industry M&A, domestically and globally: Last week was a busy one for industry M&A, with a notable private equity investment in TX, plus other domestic transactions in PA, MN, NM, FL, NJ, CO, and NY. Internationally, we reported deals in New Zealand, Australia, the UK, Germany, and Canada. You can check all the week’s M&A news here.