Word on the Street: Issue 228

For the Times They Are a Changin’?

Aha, an article title inspired by the inordinately long (2 hours and 20 mins!) A Complete Unknown? Nope. Although I did catch it last weekend and thought it was brilliant in spite of my obstinate avoidance of all things Dylan (except for “Knockin’ on Heaven’s Door”). No, the inspiration for this week’s article are the sentiments expressed by the 200+ AE industry executives, investors, and experts who will be gathering in Miami next month for the 11^th annual Southeast M&A and Business Symposium.

Consistently this group of folks—whose thoughts have been gathered in Q4 2024 and year-to-date 2025—provide the first real opportunity to take the pulse of the industry in the new year.

And based on what they’re telling us, there are some changes in the offing. 

1. First a word on who’s coming to Miami: Six in ten attendees are industry CEOs and C-suite executives. A smidgen over one-third are M&A executives (mostly from larger firms), and the balance is industry investors. Two-thirds are from firms with over 250 employees. Half of this year’s attendees are from ENR Top 500 firms. Just over half are representing consulting engineering firms, with 25% from A or AE designers. Ninety-five percent are from U.S.-based firms. One-third are from the Southeast. Just under 70% are from employee-owned or ESOP/partial ESOP firms. One-fifth are representing firms that have financial sponsors or backers. These are the folks giving us a first read on how things are shaping up in 2025.

2. Full steam ahead, Scottie: Eighty-five percent of symposium attendees expect 2025 to be an even better year for their firms than 2024 was (and that was a cracker). The balance of attendees expects the upcoming 12 months to be comparable to last year. This is the highest level of optimism that we have recorded in our symposium series history.

3. Here’s where it gets interesting: Just 56% of attendees cite finding talent as their biggest challenge headed into 2025. And while talent is still the number-one issue cited by attendees, the percentage is WAY down and a big change from prior years when it was consistently north of 75%. Maybe the industry has just resigned itself to the fact that there will never be enough talent. Maybe leaders have given up being concerned about the situation and have figured out how to better use technology to manage the dynamic and get results. Interestingly, the challenge of an “uncertain business environment” is cited by one in ten of the attendees—over double what we have seen in recent years. Most of these attendees cite the potential for changes in federal funding and priorities at the heart of their concerns. 

4. Infrastructure dominates growth opportunities: Over two-thirds of the attendees see the success of their firms in 2025 tied directly to growth in the transportation, water, and energy/utilities markets. In terms of “hot” buildings markets in 2025, 6% of attendees see growth coming from data centers. And then it’s pretty evenly split with 5% anticipating growth in health care, another 5% in commercial/residential development, another 5% in industrial, and yet another 5% in education.

5. What’s new in the ’hood? Over one-fifth of attendees are seeing new client demand for “technology” offerings, including digital services (see below), AI, and real-time analytics (dashboards). Sixteen percent of attendees cite new demands in the areas of advisory and program management. Thirteen percent are seeing new demand in environmental services. 

6. Strategic options abound: Something we are seeing more and more these days is leadership teams considering both (a) growth through acquisition AND (b) selling or recapitalizing on similar timelines (typically 12 to 24 months). So, it’s no surprise that nine in ten attendees are considering growth through acquisition in 2025, while twenty-seven percent are also considering selling or recapitalizing. (There’s a Venn diagram for that somewhere.)

7. A maturing digital business model: Just 63% of the attendees either will or will possibly generate revenues through digital services and/or products in 2025—down from 70% this time last year. But that’s still an increase from prior years when only about half of attendees indicated digital competencies and offerings. Firms have rapidly incorporated digitization initiatives to meet client demands, improve service offerings, and increase profits. 

8. AI takes center stage: Six in ten attendees (up from 50% last year) are using AI in their businesses. Just 10% indicate that they are not. Over 40% of those firms are using it for marketing, with another 30% deploying it to gain efficiency in operations. Fourteen percent are using it on specific projects for clients. 

9. Show me the money! Seventy-five percent of attendees (down from 80% last year) are forecasting raises in the 1% to 5% range. Fourteen percent are budgeting raises in the 6% to 9% range. In a departure from last year, 5% of attendees are looking at a 10% raise budget in 2025. Thirty-five percent of attendees (up from 30% last year) are anticipating higher bonuses than last year. There will never be “enough” talent to meet industry needs, so firms are making sure to compensate their high performers very, very well indeed. 

So, the earliest look that we have is that 2025 looks like continued growth overall, less of a focus/worry on “staffing,” and a lot more emphasis on technology and consolidation. 

The Southeast M&A and Business Symposium—now in its 11^th year—is the destination for AE industry executives and investors to get a first read on industry performance, immerse themselves in the latest on trends and best practices, and network with decision-makers from the Southeast 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.

Don’t Know Where to Grow Next? Use the “3C” Filter

You’ve got growth on your mind, and rightly so. Your firm can’t afford to stay still in today’s fast-moving AE industry. But before you sprint into new regions and markets, take a breath. Expanding without the right filter is like throwing darts in the dark—you might hit something, but it’s more likely you’ll waste a whole bunch of time, money, and energy. So, let’s get right to it: You need a clear, actionable framework to decide where to grow. I call it the “3C Filter”:

1. Core Strengths
2. Client Demand
3. Competitive Landscape

Here’s how you use it:

Core Strengths: Start From What You Do Best

Growth starts with knowing your firm’s DNA. Your core strengths—technical expertise, niche market focus, or standout project delivery—are your firm’s secret sauce. They’ve gotten you this far, and they’ll be the foundation for future success.

Ask yourself:

1. Where does your firm deliver undeniable value? Are you known for innovative designs in higher education? Stellar water infrastructure solutions? Bulletproof health care facilities? Focus on what’s proven.

2. Which services or solutions are scalable? If your expertise isn’t portable—whether due to regulatory, technical, or resource constraints—think twice before betting on it in a new region or market.

3. What’s your “X-factor” that competitors can’t easily replicate? Maybe it’s your design-build integration or a proprietary approach to energy modeling. Whatever it is, leverage it relentlessly.

Word to the Wise: Rank potential regions and markets based on their alignment with your strengths. If a new market demands skills you don’t have, don’t let the “shiny object” syndrome lure you into a bad fit.

Client Demand: Go Where the Money Is

Your clients—current and future—hold the keys to your growth. The best way to de-risk expansion is to follow demand. But client demand isn’t just about chasing the hottest trends; it’s about aligning opportunities with your capabilities and relationships.

Here’s how to gauge demand for your firm’s services:

1. Leverage existing client relationships. Are your national clients asking for services in specific regions? For example, if a trusted health care client wants you to design a new facility in a booming metro, that’s a green light.

2. Analyze market trends. What’s growing? For instance, it could be the surge in federal funding for infrastructure or the increasing focus on climate resilience projects in coastal regions. (We just so happened to have hosted our 2025 Market Intelligence Webinar last week—webinar recording and materials are available now!)

3. Assess unmet needs. Is there a shortage of specialized firms in certain areas? Being a “big fish in a small pond” can pay off—if the pond’s deep enough.

4. Identify high-value sectors. Some markets pay better and offer more stability—think federal contracts, life sciences, or energy. Are these sectors flourishing in your target region?

Word to the Wise: Avoid spreading yourself thin by chasing too many markets at once. It’s better to dominate a few sectors than dabble in many.

Competitive Landscape: Know What You’re Up Against

Even if a market aligns with your strengths and shows strong demand, you’ll need to outmaneuver competitors. The goal isn’t to compete head-to-head with well-entrenched firms but to find gaps and capitalize on them.

Here’s what to do:

1. Map the competition. Who dominates the market, and what’s their value proposition? If local firms have deep-rooted relationships and pricing advantages, you’ll need a compelling differentiation strategy.

2. Spot the gaps. Are clients underserved in areas such as sustainability, integrated project delivery, or advanced digital solutions? If so, you’ve found an entry point.

3. Evaluate barriers to entry. What’s the licensing, labor, or regulatory environment like? Some markets—think California’s energy codes or Texas’s water rights—require specialized knowledge that can slow your entry.

4. Weigh the cost of competition. Will you need to heavily discount fees to win work, or can you command premium rates based on your unique offerings?

Word to the Wise: Play to your strengths. If your firm thrives on complex, high-value projects, don’t undercut yourself to win routine work in a saturated market.

Putting It All Together: A Quick Case Study

Let’s say you’re the CEO of a 200-person engineering firm specializing in water and wastewater. You’re considering expanding into two regions: Region A is experiencing population growth and investing heavily in infrastructure, while Region B has a mature market with high competition but also significant federal funding opportunities.

1. Core Strengths:

• Region A: Aligns with your expertise in water infrastructure.
• Region B: Requires advanced digital modeling, which you haven’t fully developed.

2. Client Demand:

• Region A: Current municipal clients are expanding and need your help.
• Region B: No strong client relationships yet, but the funding could attract interest.

3. Competitive Landscape:

• Region A: Competition exists but is fragmented.
• Region B: Dominated by national firms with long-standing relationships.

Decision: Region A is the better fit. It aligns with your strengths, has established demand, and offers a manageable competitive environment. Region B might be a future opportunity but requires strategic investments to build capabilities and relationships first.

Your Next Move: Make It Systematic

Now you’ve got the 3C Filter. Use it. Evaluate every growth opportunity—whether it’s a new region, a market sector, or even a major client pursuit—through the lens of Core Strengths, Client Demand, and Competitive Landscape.

Here’s how:

1. Score potential opportunities. Create a scoring system (e.g., 1 to 10) for each of the 3Cs and rank regions or markets objectively.

2. Get your team involved. Use this filter in leadership meetings to vet opportunities. Let discipline leads and BD teams provide input, but don’t let emotions drive decisions.

3. Reassess regularly. Markets change. What looks like a green light today could turn red in six months. Build a process to revisit your growth strategy quarterly.

4. Test before committing. Pilot projects or small office setups can help you dip your toes without overcommitting resources.

Think About It

Growth doesn’t have to be a gamble. By applying the 3C Filter, you can focus your efforts on opportunities that truly align with your strengths, meet real client demand, and give you a competitive edge. And the best part? You’ll avoid costly missteps that come from chasing every shiny object that crosses your path.

Need help with where to grow next? Contact Mark Goodale at 508.254.3914 or [email protected].

Market Snapshot: Missouri

50 states in 50 weeks – The new series leverages our vast market intelligence database to bring you powerful AE industry insights. We continue our series this week with insights about Missouri.

Missouri Economic Performance and Outlook Grade: B-

• Economy: C
• Population: C+
• Workforce: B
• Financial/Fiscal Health: B

Missouri scores relatively well in terms of its workforce and financial stability, highlighting a business-friendly environment. The state has a relatively high concentration of architecture and engineering occupations as well as one of the highest levels of revenue per enterprise within the AE industry. Missouri has sizable infrastructure assets, such as the sixth-highest number of bridges and the same ranking position for total miles of public roads. Much of the total bridge area in the state is deemed in poor condition, which indicates ongoing needs for upgrades. Since 2019, Missouri has had one of the highest growth rates in construction spending. Its central location—coupled with access to major highways, rail systems, and the Mississippi River—makes it a critical hub in the Midwest. See below for additional highlights about Missouri:

• St. Louis: Major highway upgrades, including expansions on Interstates 70 and 270, are set to enhance transportation efficiency and economic activity.
• Kansas City: The city’s industrial real estate sector is expanding, driven by logistics, warehousing, and manufacturing demand.
• Springfield: Growth in health care and manufacturing is fueling increased investment in commercial and residential development.

For sector-specific data and insights for Missouri or questions about our market intelligence and research services, call/text Rafael Barbosa at 972-266-4955 or email [email protected].

For a comprehensive outlook for 2025, access the recording of our 2025 AE Market Intelligence Webinar. Click here for details.

Weekly M&A Round Up

A growing number of architecture firms are being acquired: The trend we observed last year continues, with more architecture firms being acquired—highlighted by three deal announcements last week. In total, five domestic deals were announced across MA, CA, NY, and MO along with additional transactions in Spain and Germany. Check out all of last week’s M&A news here.