Now is the Time to Buy (or Sell)
Dec 01, 1993
No matter what the self-appointed experts are telling you, right now is a great time to buy a firm or to be acquired by or merge with another firm. But, like most things, it’s not going to last forever. From our perspective, the merger, acquisition, and divestiture business within the A/E and environmental consulting industry is at an all-time peak. There seems to be more activity every day. Let’s review what’s fueling this frenzy: Interest rates are at an historical low. This means that it’s cheap and easy for good firms to borrow money. In fact, banks are looking for firms that are in a good financial position to lend money to. Many of our financially strong clients tell us that their bankers are reacting enthusiastically to smart acquisition proposals. Being able to get the money is critical— cash is the lubricant that makes acquisition deals happen. You can’t get a better return from other, “safer” investments. Rates of return on bank accounts and money markets don’t look very appealing and there aren’t lots of other alternatives available to investors who want a high return at a fairly low risk. No wonder firm acquisitions look attractive in this climate. However, rest assured, if interest rates ever go back up to 14% or 18%, you won’t see much interest in buying and selling A/E or environmental consulting firms. There are lots of buyers and sellers in the marketplace. No market would exist without both buyers and sellers, and hardly a day goes by that our phones don’t ring with someone who either wants to buy or sell. In fact, almost 24% of those who responded to our 1993 Principal’s Survey of A/E/P & Environmental Service Firms indicated that their firm had acquired, been acquired by, or merged with another entity. And, no doubt an even greater number have attempted to do something, yet failed for one reason or another. Experienced buyers abound. Once firms figure out that they can buy another company and make it work, both culturally and economically, they tend to do it again and again. One of our clients has successfully purchased 14 companies since 1989. Another has acquired seven firms or unwanted satellite offices of other companies. These veteran buyers know how to talk to sellers, are reasonable in their offers, come armed with alternative deal structures, and are knowledgeable about how to make things work once a merger, sale, or acquisition is consummated. Satellite offices and captive firms are being spun off. There was a time when firms pursued geographical expansion just for the sake of being able to claim they had so many offices in the state or the country. That is over. Smart companies figured out that they need a good reason to establish another satellite office, because office proliferation complicates everything. Ditto for companies whose primary business is not in the design or environmental consulting industries— many are starting to question the wisdom of trying to do everything in-house, and some are disposing of in-house groups and outsourcing these services. It can work out. No one should deny that there are lots of ways to go wrong when buying or selling a firm, yet it doesn’t have to be the proverbial “mine field” that all of the one-man consultants will tell you it is. There are a number of companies out there today, firms already working in our industry, whose owners will get rich because of their aggressive acquisition campaigns. These firms are headed by driven, entrepreneurial leaders who are both good deal-makers and good managers. They know how to make things work. And they long ago got past the idea that it is necessary to do or touch everything in the business themselves, an idea that so many design professionals get programmed into them early in their careers. These leaders have learned to delegate and have a high tolerance for ambiguity. Every design or environmental consulting firm ought to have strategies prepared for how they will search out (or at the very least how they will react to) merger, sale, and/or acquisition opportunities. The time has never been better to capitalize on the opportunities that are all around us. Decide how you and your firm can cash in now, before these opportunities evaporate. Nothing lasts forever. Originally published 12/01/1993
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.