The urge to merge?

Feb 25, 2024


Mergers may be rare in our industry, but they could be the perfect vehicle for two or more firms that want to combine forces and grow.

There is a lot of talk about buying and selling AEC firms. We refer to it as the business of “mergers and acquisitions.” While there is plentiful information on buying and selling, there really is very little information out on how two AEC firms can merge.

In fact, mergers in our industry are pretty rare. It’s usually a private equity group buying an AEC firm, or one AEC firm buying another AEC firm. But a true merger? Rarely happens. Yet, a merger may be the perfect vehicle for two or more firms that want to combine forces and grow.

Here is one example of a basic deal structure that would allow two like-minded AEC firms to merge – one larger than the other, the smaller of the two having two principals – one of whom is ready to retire: The two companies in our example are an $8 million revenue AEC company and a $2 million revenue AEC company. Let’s say each is valued at 75 percent of revenue. The larger of the two we will call the “acquiring company” and the smaller of the two the “selling company.” The two companies could combine (do a merger) and then an internal buyout of the selling firm principal who wants out could be effected.

Mergers are done by agreeing on a value for both the buying company and selling company. Sometimes an appraisal is done of each company by the same agreed-upon appraiser, and other times this is just a negotiation. Back to our example above, the $8 million revenue acquiring company is valued at $6 million, and the $2 million selling company is valued at $1.5 million.

One way to do this merger is for the two companies to combine and form a new company, and the owners of the acquiring firm would now own $6 million/$7.5 million, or 80 percent of the new company, and the owners of the selling company would now own 20 percent of the new company. Another way to handle it would be for the less valuable of the two companies to simply trade their ownership in their current company for a smaller percentage of ownership in the more valuable company, without forming a new entity.

Then the next thing that could happen, if needed, is the combined company immediately embarks on a buyout of the selling company owner(s) who want to retire, using whatever terms are spelled out in their new mutually agreed upon shareholder agreement. This deal works because the selling company owner(s) couldn’t get out before the merger. They didn’t have the financial resources to buy out the principal and they didn’t have the people inside their company wanting to take over who also had sufficient financial resources to pull that off. But the bigger combined company can easily do it.

I have seen companies in our business use mergers to grow to 20 times their original size. The owners of smaller companies just kept trading out their ownership in their firms for a smaller percentage of the larger firm. There are many reasons to do it. Strength in numbers, for example. The larger firm valuation gets a premium for a faster growth rate. The smaller firm doesn’t have the capital to do an internal transition. There are more opportunities for their people in a larger company. They can get clients they couldn’t get because they have a larger geographic footprint and more services to offer. And if the goal is to combine with other companies repeatedly and then go public or sell the larger company at some point in the future, the whole process can be a win-win for everyone.

Sure there are plenty of issues and details to work out. Who will be in what role post-merger? What will the new company be called? Who will be on the board of the combined company? What valuation method will be used and what will the buyback terms be for internal sales going forward? What will the policies be for the combined company? What redundant overhead will be cut? And much more…

Obviously, if this is something you want to pursue, you need to consult specialized legal and tax advisors. Not just any lawyers or CPAs can properly help you, because besides their need to understand mergers, they also need to understand the peculiarities of our industry. You could probably also benefit from specialized management consultants to help you deal with the integration. That said, a merger is certainly one possible way to grow your company and spend little to no cash doing it. 

Mark Zweig is Zweig Group’s chairman and founder. Contact him at

Zweig Group’s Mergers & Acquisitions Advisory Services Whether you’re on the buy- or sell-side of a deal, Zweig Group’s full-scale Mergers & Acquisitions advisory team can help you find and evaluate candidates and then structure the transaction – managing the complicated process from conception to the closing table. Our team of M&A advisors are industry leaders. We approach each project as a cross-functional team consisting of professionals with different expertise working toward a common goal. We blend industry and sector knowledge with experience across the M&A lifecycle to help you capture value for shareholders. Click here to learn more!

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.