Word on the Street: Issue 214

Jargon Is Hurting, Not Helping

 By Brendon Cussio

Private equity (PE) firms have become a major feature in AE industry consolidation, playing a large role in reshaping the competitive landscape of the markets in which they invest. We reported at our Western States M&A and Business Symposium a couple months ago that PE firms represent roughly 24% of the Engineering News-Record (ENR) Top 100 firms and are projected to account for nearly 41% of all industry transactions that take place in 2024. Many (most?) ENR 500 CEOs receive inquiries from PE firms asking about acquiring or recapitalizing their design firms on at least a weekly basis.

As these PE firms continue to engage with the unprecedented level of M&A opportunities in the AE industry, I find myself listening to their representatives relying upon the same familiar buzzwords and jargon to convey excitement and strategic fit with potential sellers. The overuse of industry clichés, however, risks undermining the authenticity of a firm’s pitch. This article explores how this language can resonate—or fail to resonate—with potential sellers and why a more tailored thoughtful approach is essential to success.

With PE firms, buzzwords and jargon are often used to convey enthusiasm, confidence, and strategic alignment when discussing investment opportunities. Phrases such as “right down the fairway,” “low-hanging fruit,” and “sweet spot” are meant to project assurance that the deal under consideration is a perfect fit. However, these terms can become so overused that they start to lose their meaning and impact. When every opportunity is framed as a “home run” or “slam dunk,” it can come across as generic and insincere, diluting the credibility of the firm’s pitch. Over time, this over-reliance on industry clichés may create skepticism, especially with seasoned sellers who have heard these terms from multiple potential buyers.

From the perspective of a potential seller, these terms can feel like hollow placeholders rather than genuine insights into the buyer’s intentions. Sellers want to feel that their business is being evaluated based on its unique characteristics and value, not just through the lens of a formulaic approach. If a PE firm uses the same language for every deal, the seller may doubt the level of thought and preparation put into the offer. 

To resonate with sellers, PE firms should aim to move beyond these overused terms and instead offer specific, tailored insights that reflect a deeper understanding of the business. For example, instead of vaguely referring to “synergies,” a PE firm could detail how its expertise in a particular industry or region can drive growth. Similarly, discussing “value creation” in concrete terms, such as how operational improvements or strategic initiatives will enhance the company’s bottom line, is likely to resonate more than broad generalities.

AE firm CEOs know that in a competitive market, standing out requires more than just the right jargon. And the PE firms that seek to recapitalize this industry should learn that lesson, too. It requires authentic engagement and thoughtful communication. By moving away from these buzzwords and focusing on the specific value they bring to the table, PE firms can establish trust and signal that they see the business as more than just another transaction. This will foster stronger connections with sellers, leading to more successful partnerships. 

We’ll be covering the topic of private equity and its role in the AE industry at the Texas and the South M&A and Business Symposium in Houston next month. If you’re attending the symposium and would like to connect, feel free to email me ahead of time at [email protected]. 

What Happens When Your Do and Don’t Share Financial Performance Information

Many of today’s AE firms still cling to traditional, closed-book management practices, often justifying it with excuses that simply don’t hold up under scrutiny. At least these firms are honest about not sharing information. The real frustration comes from firms that boast about being progressive, claiming, “Oh, we’ve been practicing open-book management for years.” But when I dig deeper and hear their version of “open-book management,” it’s clear they’re not even close to the real thing. 

But what if you truly flipped the script and shared financial and operational information with everyone in your firm, allowing them to contribute to the firm’s success? I’ll tell you what. A motivated workforce with clear direction, aligned goals, and improved performance. And it’s not just a theory. I’ve observed it more times than I can count.

The power of open-book management

At its core, open-book management is about transparency, which means sharing the firm’s financial performance, project profitability, and long-term goals with employees so they understand how their work directly impacts the company’s success. It’s about empowering your team to make decisions with a full understanding of how those decisions affect the firm’s bottom line.

And it’s not just about boosting profits. It’s about creating a culture of trust and ownership. When employees understand how the firm operates and see the impact of their decisions, they’re more likely to stay engaged, motivated, and loyal. They’re no longer just working for the company—they’re investing in it.

The dark side of not sharing information

Now, let’s look at the other side of the coin—what happens when firms don’t share information?

I once worked with a small firm that kept its financial data under lock and key. When I began working with this seemingly thriving company, no one but the partners knew the firm’s financial situation, and employees often had no idea how the company was doing. Every year, they received vague feedback during performance reviews, and bonuses were inconsistent. Over time, employees became disillusioned and frustrated, believing the partners were pocketing most of the profits.

The truth? The firm had been struggling with razor-thin margins for years, and the partners had been cutting their own pay to keep the business afloat. But without transparency, employees had no way of knowing this. The result? Talented staff members left, seeking firms where they felt more included and appreciated. Morale plummeted, and the firm found itself on the brink of collapse. It was a turn-around situation, and the firm turned it around—with the help of open-book management.

The danger of closed-book management is that without information, employees fill in the gaps with their own assumptions, and that can breed mistrust, disengagement, and high turnover. The team becomes less invested in the company’s future because they don’t understand where it’s headed.

Why not sharing information can work (in certain circumstances)

It’s important to note that not every firm needs to open the financial floodgates all at once. In fact, there are instances where not sharing information can be beneficial—at least temporarily.

Consider a firm navigating a potential acquisition. Sharing too much, too soon might create unnecessary panic among employees who may assume they’re all going to lose their jobs. Or imagine a situation where a firm is undergoing a leadership transition. There’s a delicate balance between maintaining transparency and controlling the narrative, ensuring that information is shared in a way that provides clarity, not confusion.

The dangers of closed-book management

That said, the key word here is temporarily. When firms consistently withhold information, it erodes trust and disengages employees. Lack of transparency can lead to:

1. Reduced productivity. When employees don’t know how the company is performing, they can’t align their efforts with the company’s goals. They may work hard on the wrong things, leading to wasted time and resources.
2. Increased turnover. Employees who feel left in the dark are more likely to leave for firms where they feel valued and included.
3. Stunted growth. When employees don’t understand how their performance impacts the firm’s bottom line, they won’t push as hard to meet goals, and opportunities for growth can be missed.

What to share (and when)

So, what should you actually share with your team? It’s not about dumping a spreadsheet of financials on everyone’s desk. The goal is to provide clear, digestible information that helps employees understand the firm’s financial health and how they can contribute to its success.

Here’s a breakdown of what you might share:

1. Profitability metrics. Project profitability, revenue per employee, and gross margins.
2. Key financials. Revenue, operating expenses, and net income.
3. Project performance. Highlight which projects are performing well and which are struggling.
4. Strategic goals. Share the firm’s long-term vision, including growth plans, client targets, and service line expansions.

Phased plan for easing into open-book management

For firms not used to sharing any information, diving headfirst into open-book management can feel overwhelming. A phased approach can help ease the transition. Consider the following:

1. Phase 1: Share high-level metrics. Start with broad, easy-to-understand metrics. These measures could include annual revenue, company-wide profit margins, and high-level strategic goals. Schedule quarterly all-hands meetings to review these metrics with staff.
2. Phase 2: Drill down into project-specific metrics. Once employees are comfortable with high-level financials, begin sharing project-level profitability and performance. Show how each department contributes to the firm’s overall financial health.
3. Phase 3: Engage teams in decision-making. Finally, get employees involved in the decision-making process. Share more detailed financial information with key staff, such as department heads, and involve them in setting budgets, reviewing expenses, and identifying opportunities for improvement.

Best practices for sharing information

Sharing financials should be done thoughtfully and strategically. Here are some best practices:

1. Frequency. Share information at least quarterly, with monthly updates on specific project metrics. Consistency is key—you want employees to feel connected to the firm’s ongoing performance.
2. Methodology. Use visuals and graphs to explain financial performance. Many employees won’t be comfortable with financial jargon, so making the data digestible is crucial. Tools such as dashboards or scorecards can help employees track their contributions to the firm’s success in real-time.
3. Context. Numbers on their own can be confusing or misleading. Always provide context for the data you’re sharing. For example, if project profitability is down, explain why and what can be done to improve it.

Open-book management isn’t just about sharing numbers. It’s about fostering a culture of trust, engagement, and ownership. By giving employees access to the right information, AE firms can unlock their full potential, aligning efforts across the organization and driving toward shared goals.

For those firms that still keep their books closed, the risks are clear—lower morale, higher turnover, and stunted growth. But by taking a phased approach to open-book management and sharing the right information at the right time, you can create a workforce that’s motivated, informed, and ready to help your firm succeed.

So, is it time to open the books? You bet.

To reach Mark Goodale, call or text 508.254.3914 or send an email to [email protected].

Market Snapshot: Economic Indicators

According to the August Leading Economic Index (LEI) released last week by The Conference Board, the U.S. economy will be facing headwinds and slower economic growth ahead. The indicator, which fell by 0.2%, has been on a downward path for six consecutive months. The Coincident Economic Index (CEI), a measure of the current state of the economy, improved 0.3% in August, mostly driven by the industrial production component (other components include payroll employment, personal income less transfer payments, and manufacturing and trade sales).

Persistently weak consumer expectations of future business conditions and stock market volatility in early August have caused the LEI to decline and trigger a recession signal. On the next release, we can assess how the recent Fed rate cuts will impact this trend. In our industry, even though it’s still early, we might see some effects relatively quickly. Rate cuts might encourage developers to revisit certain investments. Construction starts may possibly increase soon as shelved projects make it out into planning and design. In addition, with increased demand for private investments, rate cuts could spur more M&A activity this year and next.

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

Industry M&A continues to rebound domestically and globally, with a total of 12 new transactions: Last week we reported six domestic deals in PA, UT, FL, and MO. There were additional deals overseas in the UK, Denmark, Australia, and Ireland. You can check all the week’s M&A news here.