Despite the uncertainty and impact caused by potential tax law changes, inflation, and the pandemic, forecasts are strong overall for the AEC industry for 2022.
AEC firms have faced a flurry of changes in the past few years. From tax laws to workforce trends to COVID-19 impacts, leaders must manage increasing amounts of uncertainty. To gain some clarity, we spoke to Jamie Claire Kiser – a managing principal at Zweig Group – about trends affecting the AEC industry.
Where the AEC industry stands in 2022. In recent years, an economic growth cycle drove record backlogs while increasing profitability. Before COVID-19 there was a 10-year high, and by the end of last year metrics were back where they were, if not better, according to Kiser.
Demand for AEC services is high with a stable outlook into the future. To successfully capture and deliver that work, industry leaders need to look more closely at their operations.
Here are some of the key factors to watch in 2022:
- Private equity participation is on the rise, shifting focus from revenue to cash flow
- Higher valuations are attracting more merger and acquisition suitors
- Inflation is triggering adjustments in contracts, sales, and supplier relationships
- Pending tax changes are driving a higher pace of transaction activity and deal urgency
- Federal contracts through the infrastructure bill will influence backlog
AEC staffing considerations for 2022. Referring back to the economic drivers, there’s only so much cost containment you can do. At some point you have to focus on how to keep your people and compete for top talent. In the year ahead, many firms will need to address the human side of the business. Concentration of ownership and a pipeline of younger talent are big concerns.
- Eighty percent of AEC firm equity is held by the 55 and up age group, according to Zweig Group research
- Moving ownership into lower levels of the organization helps maintain control for pursuing an internal ownership transition strategy
- Bigger backlogs lose meaning without the talent needed to deliver the work
- New graduates need to be sold on the lifetime value of an AEC career path
- Private equity is also influencing DE&I awareness
2022 risk factors for AEC firms to consider. Industry drivers in 2022 and beyond will force owners and leaders to understand their businesses much more intimately. While 2022 generally looks good for growth, firms should be aware of these potential growth barriers and how to manage them:
- Failure to pursue proportional lines of credit to support growth
- Chasing new work at the expense of invoicing and a healthy go/no-go process
- Missing out on first-mover advantages in new construction technology and materials
- Lack of resource and inflation planning on long-term, multi-year contracts
- Inattention to potential tax basis changes in the jurisdictions where they operate
Despite the uncertainty and impact caused by potential tax law changes, inflation, and the pandemic, forecasts are
strong overall for the AEC industry for 2022. With increasing demand for AEC services, it’s crucial owners look more closely at their operations and prioritize the development and growth of their teams in order to succeed in the ever-changing marketplace.
Kevin Johns is shareholder, Architecture & Engineering with Clayton & McKervey. Contact him here.
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