March 1, 2021
2021: Systems and people overwhelmed and overloaded
If you feel like there is just “more” of everything right now and you and your team are overloaded and overwhelmed – well, it’s not just you. Here is what we are seeing and hearing around the country.
- A/E firms are maxed out and an increasing number are declining new work: Nationally, demand for design and environmental services is at an all-time high. Unprecedented levels of capital flowing into the residential sector and other areas has driven demand throughout the industry. At the same time, the supply of A/E services (a combination of available talent + time + applied technology) has reached capacity. So, many firms are turning new work away because they cannot in good faith take it on for the foreseeable future. (Note: If you are the President/CEO of a general civil/site engineering or surveying firm that is operating under capacity and can take on more profitable work then contact us at the email or number below and we will connect you with firms that are overcapacity and looking to outsource work.)
- Acquirers are overwhelmed with opportunities: In a harbinger of the massive wave of consolidation that is about to turn the A/E industry upside down, buyers do not have the bandwidth to properly process all of the opportunities that are coming their way. Whether through intermediaries or direct contacts, buyers have never seen anything close to this level of sellers before. This “oversupply” may put downward pressure on deal multiples. It also puts the industry in a position of “peak” consolidation activity.
- The best firms are being relentlessly pursued by buyers: Pre-pandemic we would regularly hear from CEOs of firms in hot regions (e.g., southern states) or hot markets (e.g., life sciences, data centers) “Yeah, I get one, maybe two inquiries per week from potential buyers, but I never respond to them.” Now these CEOs are telling us that they are getting multiple inquiries daily from potential buyers or their intermediaries. The bifurcation of the market is upon us with unicorn firms commanding premium pricing and dictating terms of transactions.
- Texas and Mississippi firms brought to a standstill: A/E and environmental firms in Texas and Mississippi have lost at least a week of productivity, revenues, and profits in February due to the ice storm last week and its aftermath. Many had zero internet access for the duration. VPNs were unavailable. Numerous firms had their offices completely closed down. Many still have employees cleaning up from home damage.
- “Doing” is king, “Learning” is diminished: Leaders, managers and employees are maxed out. Right now, there is more work than they can process. CEOs are faced with a barrage of strategic decisions and options. Managers know they should be elevating and developing their people – but they instead are doing the work of the people that they have been unable to hire. Capacity is the fundamental constraint. Firms cannot afford waste in their systems or they will not be able to sustain their greatest resource…their talent. In every position, the workforce is “doing” and “reacting” more so than in 2019, while “learning” and “reflecting” is in decline.
- Human Resource departments under water: Chief People Officers and their teams are overwhelmed with position recs. They are struggling to keep up with the demand for new staff. The needs are everywhere— production, PMs, regional managers, division managers, top executives— there is no end to it. More A/E firms than ever have brought on– or increased the number of– in-house recruiters. Everyone is chasing the same dwindling pool of talent. It’s a sellers’ market right now. Top talent at every position level has tremendous leverage at the negotiating table.
- The not-so-distant drumbeat of cyberattacks: In the Boardroom and the IT department (which is now apparently either in a bedroom in Billings, MT or “the cloud” – wherever that is), cybersecurity is top of the agenda. The discussion alternates between the hysterical “it happened to insert national iconic industry firmname here, so we HAVE to spend $1 million NOW to protect ourselves!” to something more sanguine. However, the threat of cyber-attack leading to operational shut-down and the inevitable ransom demand is pervasive. It’s similar to the Y2K event of 20 years ago. But this time it’s much more sinister and is unending.
- Decision-fatigue on the rise: Weekdays blend together. Workdays start earlier and bleed into the evenings. Work weeks run into weekends. Your iPhone screen time report is frankly depressing. Your Cortana Daily Briefing shows you have zero time to collaborate with colleagues – because you’ve used it all up working. Every Zoom call has at least one person showing up late – not because they were stuck in traffic but because their last call “ran over – sorry!” The science shows that the longer people work the poorer their decision-making becomes. This is not a great place for a professional services industry to find itself.
- What does it all mean? Taken together this combination of overloaded and overwhelmed means our industry is generating record profits with a workforce that is burning out. Quality is inevitably declining, and future liabilities are building due to more mistakes being made by our people working longer hours in an environment where maxed out QA/QC systems are failing.
- Coda: Is this “overwhelmed and overloaded” dynamic the New Reality? Or is it a peak or bubble? A possible Federal Infrastructure package later this year would support the former. However, if you listen carefully, you can hear more and more management teams around the country reacting to internal financial reports that show a slower start to 2021 compared with 2020. Could this be the peak?
- Pro tip on time management for a Zoom world: I got a great tip from one of the most successful industry CEOs as follows: Make sure to leave 15 minutes between calls so that you (a) minimize “runovers” and (b) can take notes, reflect, and prepare for what next.
2021 Predictions Update: Last November we made our 21 Predictions for 2021. Prediction #14 was that the number of ENR Top 500 firms that would sell or recapitalize would double to twenty from the levels that were typically seen pre-pandemic. As of two months into the year, we are well on track to that prediction with announcements from Universal Pegasus, Aegion, Enercon, Ratio Design and Murraysmith.
M&A Update: Industry consolidation in the U.S. over the past 12 months is down 8%. However, that percentage is going to rapidly rise by the end of March. Last year’s pattern of consolidation was complicated by the virus which essentially froze half of all deal activity from March through June. Given what we are seeing in the market right now we expect record deal volume in this transition year of 2021.
2020 M&A Year in Review: Our 2020 M&A Infographic gives you insight into all of last year’s M&A trends and provides our predictions for 2021.
March VR and Livestream events: In March we’ll be hosting the first ever combo Virtual Reality and Livestream events for the A/E industry. On Tuesday, March 23 it’s our New Reality: 2021 Edition Broadcast and on Thursday, March 25 it’s our Q1 M&A Symposium. Grab your Oculus headset to fully immerse yourself in the presentations and meet with the MG team and the other attendees in our VR Auditorium. Or catch the Livestream on your laptop or mobile device.
June VR CEO Conference: This June we’ll be hosting our third Virtual Reality CEO Conference with new content, format, and even cooler VR features. This three-day conference will focus on Strategy, Execution and M&A/Capitalization. Registration opens soon. Click here to be kept updated.
What we’re following on Twitter this week: @NASAPersevere
Questions? Comments? Where are you seeing overloading or where are you seeing systems being overwhelmed? Or is everything very Zen with you? Or if you are under capacity and would like to connect with firms that want to outsource work then email Mick Morrissey @ [email protected] or call him @ 508.380.1868.
FOUR FACTORS TO WATCH
GDP growth in 2021 is expected to be 6.2%, or more. With the House of Representatives passing President Biden’s $1.9 trillion stimulus package early Saturday, the Senate will begin offering amendments to the plan next week. Democrats are attempting to send the bill to Biden by March 14, the date when jobless benefits will expire. In any case, if the bulk of the bill passes, it will bring the total amount of Federal government stimulus to roughly $5.7 trillion or more than a quarter of the U.S. GDP. With an infrastructure package still possible later this year, the economy should be strong through 2022 and into 2023. For now, the White House and the Federal Reserve will give preference to strengthening the economic recovery over managing budget deficits.
2. COVID-19 Case Numbers
In the last week, the seven-day average of COVID cases has dropped from about 73,000 a day to 68,500— a relatively minor reduction in comparison to how much cases had been falling in the last few weeks. The seven-day average of fatalities continues to remain relatively steady. Seven-day averages of COVID cases dropped in California, increased in Texas, and held steady in Florida:
- California: 7,500 to 5,500
- Texas: 5,500 to 8,000
- Florida: 6,100 to 6,100
3. Jobless Claims
According to the Labor Department, first-time weekly claims totaled 861,000 which was higher than the 773,000 estimate from economists surveyed by Dow Jones and slightly up from the revised number of 848,000 the previous week. Continuing claims also dropped by 64,000 to just below 4.5 million.
4. COVID Vaccine Distribution
According to information collected by Bloomberg, 236 million doses in 101 countries have been administered, compared to 193 million doses in 87 countries the week before. The average number of daily doses increased from 6.47 million to 6.67 million.
To date, 72.8 million doses have been administered in the U.S., up from 59.1 million last week. An average of 1.65 million doses per day are now being administered, which is up from the daily rate of 1.58 million last week. Across the U.S., 21.9 doses have been administered for every 100 people and 78% of the allotment delivered to states thus far have been administered, compared to the previous week of 17.8 doses per 100 people and 81% of the allotment.
In addition, the U.S. Food and Drug Administration approved Johnson & Johnson’s COVID-19 vaccine. It requires only one dose and can be stored at normal refrigerated levels. In the US, it is considered 72% effective, and offered 86% protection against severe forms of the disease.
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New Reality: 2021 Edition
Virtual Reality + Livestream
March 23 • Virtual Reality + Livestream Event
Join Mick Morrissey and Mark Goodale as they discuss the A/E industry’s New Reality in 2021.
Q1 M&A Symposium
Virtual Reality + Livestream
March 25 • Virtual Reality + Livestream Event
Join Mick Morrissey, Nick Belitz and Jon Escobar discussion on M&A activity and trends, deal pricing and outlook for the rest of the year.
VR CEO Conference
June 8-10 • Virtual Reality Event
Connect with A/E CEOs from around the nation in fully immersive 3-D Virtual Reality.
Find, hire, onboard. Remotely!
Despite COVID-19, the shortage of capable A/E professionals remains the fundamental constraint to sustainable, profitable growth. And with a vaccine still months away, the challenge to find, hire, and onboard great people has only gotten tougher. One of the A/E industry’s top recruiters, Lisa Elster, shares her secrets for remote recruiting in the New Reality in this timely, insightful, and COMPLIMENTARY webinar.
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