A new era of AEC growth is emerging, driven by value creation and strategic expansion.
Growth has always been an interesting concept in the AEC industry. Many firms have opportunities to grow with existing clients, grow into new markets, or grow into new geographies. Existing demand, in some markets, is a magnet for firms to expand the presence of their services. Oftentimes, demands for growth are stifled due to management’s lack of enthusiasm to allocate resources to add employees, manage staff, deal with headaches, and develop business – all while trying to continue to execute work at a high level.
From my experience, the majority of traditionally owned architecture and engineering businesses are treated as income stocks and not growth stocks. The owners don’t reinvest – partially because working capital in this space can get extended, but also because they take the excess margin as income. Kind of like JG Wentworth: “It’s my money and I need it now!”
However, a new dynamic is shaping up in an industry that can be hyper local, with hyper loyal clients, and ownership teams who are focused on simply managing what they can. Design firms with under 50 FTE, doing roughly $10M in net service revenue (NSR) make up the bulk of firms in this industry, in fact most are under 20 FTE and $5M in NSR. An interesting dynamic that we’re starting to encounter is the excitement from these smaller firms to grow their influence by joining larger platforms or larger strategic partnerships. This option is being seen as a way to expand their influence, build pipelines for talent, and access markets that have demand for their existing services.
Zweig Group recently conducted a study of about 200 firms interested in M&A, the results of which are featured in Zweig Group’s free 2025 AEC M&A Outlook Report, produced in partnership with Stambaugh Ness. We found something that is not shocking, however, it is interesting in the context of a growth-oriented conversation. Value creation is the top reason firm leaders are interested in M&A – both on the buy and sell side.
We asked firms about their ownership structure: traditionally privately held, private equity backed, ESOP, or Other. The majority of the firms (77%) were traditional privately held, nearly 10% were private equity backed, just over 12% were either full or partial ESOPs, and 1% represented the Other category. We asked when firms were founded and what their NSR was last year. The average traditional-privately held firm was 39 years old, doing about $40M per year in NSR; firms that were ESOPs were 61 years old, doing roughly $132M; and private equity-backed organizations were doing nearly $210M and were just 29 years old. In basic terms, this tells us private equity backed firms are growing more than five times faster than their privately held peers. Let’s be clear. This comes with a catch and one that people need to understand prior to making the commitment. The catch is that you have to want to grow. Like really grow.
The historical model of focusing on what you can control and growing responsibly, is taking a back seat to scale and value creation. In this new era, firm leadership are focusing on value creation while attempting to ensure the impact their employees can deliver meets the market demand. Professional development and education programs for key people become paramount as leaders look to creating management succession plans to satisfy the need. While value creation remains the top priority for leaders looking to exit, the impact the transaction will have on their people is a close second.
Zweig Group is a full service consulting agency and recently, we’ve been facilitating a lot of educational sessions with leadership teams to talk honestly about their future, about their firms, and about their people. The industry is at a dynamic inflection point and many owners in the industry are facing tough decisions as outside capital continues to gorge itself on these islands of unique cultures and talent. This industry serves the built environment. It’s constantly changing, growing, and contracting. It’s a space in constant need of repair and improvement. Many leaders and owners want to understand the expectations for growth, for value creation, and what their role will be post transaction. They want to know how they can get into their highest and best use and grow their value accordingly.
We are seeing firms entertain transition discussions earlier on in their lifecycle. The prospect of attaching to a larger organization with more resources is intriguing to some who are tired of being in the driver seat all the time. There’s movement in the industry at the ownership level. And a philosophical shift seems to be occurring as promises of a technological revolution circle the design and construction industry. The space is ripe for transformation. It’s ripe for value creation. And it’s primed to deliver impact-focused growth to fuel the next generation of structures and systems that shape the human experience.
Understanding the forces behind today’s accelerating M&A activity is key to charting your next move. The 2025 AEC M&A Outlook Report offers a clear, data-driven look at trends in buyers, sellers, valuation, culture, and capital. Check out the report from Zweig Group and Stambaugh Ness to see what’s driving AEC M&A now and what’s coming next. Download the report for free.
 |
Will Swearingen is senior director of Transition consulting at Zweig Group. Contact him at wswearingen@zweiggroup.com. |
