Environmental consulting firms’ niche holding strong.
Press Release: August 18, 2011
FAYETTEVILLE, AR (August 18, 2011) –Statistics from ZweigWhite’s 2011 Valuation Survey show a reduction in staff but a general holding of value for many sectors of the architecture, engineering, planning and environmental industry. One sector proves to be the star: environmental consulting firms, which continue to increase in value despite trends in the rest of the industry.
A commonly used measure in the survey is TIC value, which is the value of total invested capital, or a firm’s equity value and interest bearing debt. TIC value is also referred to as “enterprise value.” For the entire A/E industry, the median TIC value/employee has steadily increased over the past decade to reach an all-time high of a median of $54,458 this year. Additionally, the survey broke this value down for each sector of the entire industry. A/E (primarily architecture) firms had the lowest value at a median of $42,802, but environmental consulting firms were a whopping $65,943.
A measure of value found in ZweigWhite’s survey is TIC divided by net revenue.
For a typical A/E/P or environmental consulting firm, which has few hard assets, the stream of revenue it is able to generate is an important component of its business value as a going concern.
For the entire industry, the TIC value/net revenue has remained at median of 0.49 for the past three years, a small increase from 2008’s value of 0.46. Environmental consulting held a higher ratio at a median of 0.54. The 2010 Survey shows the median for environmental consulting firms at 0.53, and the 2009 survey showed 0.56.
The TIC value/EBITDA ratio is determined by dividing the TIC value by EBITDA (earnings before interest, taxes, depreciation, and amortization). It is calculated by adding interest expenses and depreciation/amortization expenses to pre-tax, pre-bonus profit.
All firms’ median TIC value/EBITDA ratio has remained nearly steady over the past few years. 2011’s value of 3.62 was a very slight increase of 2010 and 2009’s 3.57. These are way down from 2006 levels of 4.16 Environmental consulting was much higher at 4.62 for this year. The 2010 survey reports 4.61, and 2009 was 4.66
So what does all this mean? Tracey Jeffers, ZweigWhite principal, valuation consulting feels that comparing the consistency of TIC value/net revenue and TIC value/EBITDA, with a sudden increase in TIC value/employee most logically draws the conclusion of a dramatic reduction in staff, suggesting the industry as a whole is doing the same amount of work with fewer people.
Another possible reason for this phenomenon is increased debt.
“TIC has a debt component, so declines in equity value could be partially offset by increases in debt, causing firms to become more highly leveraged,” Jeffers says.
Environmental consulting firms’ consistently higher data and lack of consistent downward or upward trend in the TIC value/employee ration, is most likely due to an increased focus on this market sector. Jeffers also suggests “a specialty niche and the expertise of staff tend to bring higher fees.” Another likely reason for the good performance of environmental firms is that a good deal of their work is compliance driven, since it is legally mandated, the work must be performed.
For more information on the 2011 Valuation Survey
About Zweig Group
Zweig Group, three times on the Inc. 500/5000 list, is the industry leader and premiere authority in AEC firm management and marketing, the go-to source for data and research, and the leading provider of customized learning and training. Zweig Group exists to help AEC firms succeed in a complicated and challenging marketplace through services that include: Mergers & Acquisitions, Strategic Planning, Valuation, Executive Search, Board of Director Services, Ownership Transition, Marketing & Branding, and Business Development Training. The firm has offices in Dallas and Fayetteville, Arkansas.