Word on the Street: Issue 220

The Holy Grail of Acquisitions

The perfect integration.
Yes, that’s the Holy Grail.
It’s a quest every acquirer embarks on.
Yet very few prevail.

What starts with a vision of seamless, spirited collaboration in pursuit of treasures and bounty between those known previously as buyer and seller too often ends with finger-pointing, disappointment, and the departure of frustrated clients and alienated employees. The goals of increased profits, revenues, and backlogs blended with reduced staff turnover and enhanced employee engagement are too frequently sabotaged by mismanagement, lousy communication, hidden agendas, defensiveness, and passive-aggressive behaviors. But it doesn’t have to be this way.

With now two years of data from our Excellence in Acquisitive Growth Awards series, we can confidently say the Holy Grail of acquisitions can be achieved—and regularly so. But it takes discipline, know-how, and practice. 

Integration and ancient Greek philosophy: As well-known AE industry consultant Aristotle said in his weekly newsletter Word from the Acropolis, “We are what we repeatedly do, therefore, excellence is not an act, but a habit.” So, it should come as no surprise that many of the industry’s most prolific acquirers possess the secret sauce that creates successful integrations. The results from our Best Post-Transaction Performance Award applications speak for themselves: 

• The best acquirers know how to increase profits: 95% of acquisitions by applicants resulted in an increase in profits within one year of the transaction being completed. The median reported profit increase was a robust 78%. About one-third of Award applicants reported profits at least doubling in the year after a transaction. 
• They make a habit of boosting sales through their acquisitions: One of the big lessons learned from the two years of performance data is the ability of acquirers to ramp up the fee backlog attributable to their acquisitions. Three-quarters of acquisitions resulted in an increase in backlog, with the median reported uptick being 28%. Twelve percent of acquirers reported backlog more than doubling a year post-transaction. 
• They are 100% growth-focused: The median reported increase in revenues one year post-transaction was 22%. Almost all (95%) Award applicants reported an increase in revenues one year post-transaction. Eight percent of applicants reported a doubling or more of revenues. 
• They excel at employee engagement: Acquisitions are an excellent way to boost employee morale and engagement. 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.

The secret integration sauce revealed: What are some ingredients of that secret integration sauce? Here are just some direct quotes from those who repeatedly achieve the Holy Grail of successful integrations:

• “We prioritized cross-selling their expertise into our historically target markets.”
• “We invested in and enhanced their marketing deliverables and capabilities.”
• “We intentionally and immediately pursued work-sharing across our geographical footprint.”
• “We quickly transitioned the firm to our ERP system, project management training and controls, and injected smart and strategic investment dollars into the operations.”
• “We boosted organic hiring efforts to capitalize on a strong and growing backlog.” 
• “We expanded their technical resource pool, allowing them to pursue, win, and deliver larger projects.”
• “We deployed our best-in-class employee retention and training programs.”
• “Where previously there was pretty much zero communication, we proactively and regularly talked one-one-one with key folks and initiated monthly communications to keep everyone apprised on everything that was taking place in the transition.” 
• “We integrated key client and technical focus area leads together so that together we could deliver the best resources to win work together that neither of us could do individually.” 
• “We brought in our PM training program. They did not have one before the acquisition. Their PMs loved it. And project performance increased—not overnight, but within the first six months.”
• “We eliminated unnecessary overhead.”

Lessons learned: Four things strike me when reading these quotes from these very successful acquirers. First, there is nothing radical here in terms of management or ideas. Second is the intentional focus on making the necessary investments (in systems and people) to create opportunities for the combined firms. A “hands-off” approach is never contemplated, while pursuit of cross-selling opportunities—resulting in quick and meaningful “wins”—is imperative. Third is the commitment to communication—at a company and individual level. There is no place for a vacuum in a successful integration. And fourth is making the changes that are necessary to improve performance. This requires managerial know-how, toughness, and a vision for how things can be better.

Behind the scenes: What you do not see in these quotes is the extraordinary planning and research and screening done by the corporate development teams of these successful acquirers. Nor do you see who the “we” are—the folks on the ground, from both buyer and seller—executing the plan put in place for the integration and adjusting it as needed. 

Perfect integration is achievable. Don’t let the naysayers tell you otherwise. They have an agenda. Don’t let it interfere with yours. 

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

7 Ways to Find the Faint Line Between Right and Wrong

You’re tantalizingly close to finalizing an acquisition that would be a game-changer for your firm, opening doors to fast-growing regions, bringing in a dream team with rare and valuable skill sets, and significantly raising the ceiling for your existing staff. This isn’t just a nice-to-have-deal—it’s a must-have. Revenue has been declining, and the careers of many good people who have been with you through thick and thin are on the line. Remarkably, due diligence has been smooth as silk—yet something keeps nagging at you, making the deal feel just a bit too good to be true. 

Then, at the 11^th hour, your instincts prove correct when a troubling piece of information surfaces. The crown jewel in the deal has a reputation for questionable personal conduct. Specifically, it turns out he’s been involved in multiple incidents at industry events where his behavior after hours has raised eyebrows—from inappropriate comments to some uncomfortable situations with junior colleagues. When you bring it up, he brushes it off as “just socializing” and assures you it’s “all in good fun,” dismissing it as harmless.

Well, that’s just great. This home run of a deal, a mere day away from closing, is now suddenly in question. Backing out would be costly and deflating on so many levels, but going through with it just feels risky—and maybe even wrong. He’s as good as it gets in the industry and it’s clear your current staff will benefit in a huge way, but his behavior doesn’t align with the culture you’ve so carefully crafted through the years. You tell yourself you could set up guardrails and make expectations clear. Won’t that really be enough to produce the right behavior? On the other hand, is it right to expose your employees and clients to a known risk? Time’s up. You have to make your decision. 

The Ethical Quagmire of Modern AE Leadership

Business ethics might not be the most talked-about subject in the AE world, but these days, it’s becoming an increasingly vital one. With economic pressures, labor shortages, increased competition, and the demands of sustainability and innovation, leaders find themselves pulled in every direction. When pressures build, the line between what’s right and what’s questionable can blur, even for the most principled leaders.

The vast majority of leaders in the AE industry genuinely want to do the right thing. The issue is not their convictions; rather, it’s the complexity of modern challenges where “right” and “wrong” aren’t always clearly delineated. When your profession centers on juggling business realities with client needs, employee well-being, community impact, and sustainability—the question is often not whether to make an ethical choice, but rather how to identify what the ethical choice actually is. Below is a discussion of a handful of principles that can serve as a compass when the ethical waters get murky.

Principle 1: Think long-term impact, not short-term gain. 

When ethical dilemmas arise, a valuable approach is to consider the long-term impact of each decision. In a world that sometimes incentivizes immediate results, keep the big picture in focus. Will the decision today enhance or erode your firm’s reputation over time? Will it affect community trust or the safety and well-being of your employees, clients, and other stakeholders? Ethical leadership often involves making choices that may not be popular or profitable in the short term but build a stronger foundation for the future.

Principle 2: Balance transparency with professional responsibility. 

Transparency can be a double-edged sword. On the one hand, clients and stakeholders appreciate honesty. On the other, too much disclosure without careful framing could damage relationships, incite unnecessary alarm, or even spark liability concerns. Being ethically transparent doesn’t mean airing every challenge but rather sharing key issues that might affect safety, quality, or long-term performance. So, develop a nuanced understanding of what to communicate, how to frame it, and when to act.

Principle 3: Define your firm’s ethical North Star—and follow it. 

Having a defined set of ethical values can help reduce ambiguity when lines blur. At your firm, maybe it means going beyond legal compliance and actively embedding values into your culture and decision-making processes. Does your firm prioritize sustainability? Do you emphasize safety and public trust? Knowing your “ethical North Star” provides a stable reference point, helping leaders steer decisions consistently, even in tough times. For example, if sustainability is a core value, then decisions about materials, construction processes, and partnerships should reflect that commitment. It can be tempting to leave such core values behind to win a big project. But if you have clearly communicated your firm’s values—to both employees and clients—it’s easier to justify the hard choices when they arise.

Principle 4: Engage your team’s ethical voices. 

The responsibility for ethical decision-making doesn’t fall on you alone. Engaging employees in discussions about ethical challenges can offer new perspectives and help build a collective sense of responsibility within the firm. Encourage the team to voice concerns and participate in decision-making processes. By fostering a culture where ethical considerations are actively discussed, you can make better-informed choices while empowering staff to uphold shared values. This collaborative approach also helps build a “check-and-balance” system within your firm, so ethical considerations don’t get lost amid project pressures.

Principle 5: Stay grounded amid competing pressures. 

You are often pulled between competing pressures from just about every direction. Staying grounded means resisting the urge to appease one stakeholder at the expense of another and avoiding the pitfalls of making reactive decisions. When the pressure is on, take a step back, consult with key stakeholders, and assess the options with clarity. Giving yourself the space to evaluate all dimensions of an ethical dilemma—economic, environmental, safety, and community impact—can prevent hasty decisions and ensure that you’re keeping integrity at the core of your actions.

Principle 6: Embrace the complexity (and don’t go it alone). 

Today’s ethical dilemmas are rarely black-and-white. Embrace the complexity of these situations, knowing that the best solutions may require creativity, collaboration, and sometimes even compromise. Start an advisory group, find a mentor, or bring on outside board members who can provide guidance when the ethical path isn’t clear. One of the most empowering moves you can make is to seek advice and weigh different perspectives. By engaging with others and being open to diverse viewpoints, you allow yourself the flexibility to make balanced decisions grounded in a sense of collective wisdom. Even though the responsibility rests with you, opening up ethical questions to trusted advisors can uncover nuances that may not be apparent at first glance.

Principle 7: Recognize that ethical decisions shape legacy. 

Ultimately, each ethical choice becomes part of your legacy, one that shapes how you’re remembered and, by extension, how your firm is perceived. Clients and communities may never know the details of every decision you make, but they feel the impact of choices made with integrity. When facing tough decisions, consider how you’d want your firm to be regarded in the years to come.

While the pressures of today’s AE industry are substantial, they also create opportunities for you to set a higher standard. By keeping the big picture in mind, staying committed to core values, fostering a culture of transparency, and recognizing that ethical decisions are part of a larger legacy, you can navigate these challenges confidently—even when the lines seem blurred. In doing so, you’ll not only build a stronger, more resilient firm, but also help set the tone for the future of this great industry.

Text or call Mark Goodale at 508.254.3914 or email [email protected].

Market Snapshot: Financial Health of U.S. States

Truth in Accounting (TIA), a think tank focused on governmental fiscal transparency, released its 15^th annual Financial State of the States report, which analyses and ranks the fiscal health of all 50 U.S. states. Here are the highlights:

• During the 2023 fiscal year, most states improved financially, but 27 states did not have enough money to pay their bills.
• Unfunded retirement liabilities were the largest contributing factor to state-level debt.
• The top-ranked states (in terms of taxpayer surplus) were North Dakota, Alaska, Wyoming, Utah, and Tennessee.
• Texas climbed six ranking positions compared to last year’s report. Iowa, Georgia, Arizona, and South Carolina also improved significantly, climbing four spots.
• The states with the highest taxpayer burden were Connecticut, New Jersey, Illinois, Massachusetts, and California.
• Kansas, Oklahoma, Colorado, and Ohio dropped the most ranking positions from last year’s standings.

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

Two more ENR Top 500 ranked firms sold last week: Last week we reported the 27^th and 28^th ENR Top 500 ranked firms to be sold or recapitalized this year. A total of seven domestic deals were announced in WA, NY, NJ, CT, and TX. Globally, we reported seven deals in France and the UK. You can check all the week’s M&A news here.