Key points from this year’s ElevateHER Symposium and ElevateAEC Conference & Awards Gala.
Our annual ElevateAEC Conference & Awards Gala always leaves me with a flurry of new ideas and threads connecting what I see in the (proverbial) trenches in my work as Zweig Group’s director of advisory services with broader, industry-wide conversations. This year was no different. A few key points from this year’s conference:
- Breaking news! Private equity has fueled a record number of AEC transactions in 2022, and we do not see this trend slowing down anytime soon. When private equity enters an industry, it can change everything. Metrics, accountability for senior leadership to hit those aforementioned metrics, partnership from investors in helping support hitting these metrics, transparency behind the drivers of these metrics, etc. all become reality. With great financial partners, we see incredible investments in technology and in operational excellence as well as less debt-aversion and more openness to debt as simply another available resource for growth than we may in a non-financially-backed AEC firm. Valuation multiples have increased (though we tend to feel that AEC overall was generally undervalued prior to the influx of PE investment and feel that some of this correction is very positive for the industry overall). We recently supported a pure architecture recapitalization, marking a yet-further expansion of private equity investment into AEC (environmental and engineering have been the overwhelmingly preferred investments for PE previously). Because private equity is fairly new within AEC, we don’t have many examples of second and third transaction events, so it will be interesting to see how EBITDA multiple arbitrage plays out in 10 years and how it impacts our own work in mergers and acquisitions.
- ESOP’s are also becoming an increasingly common form of ownership transition, and ESOP transactions within AEC are trending smaller, providing an interesting opportunity for firms that want to remain as legacy firms, retain great staff, and also transition a large block of ownership. I sat down with Ed Renenger, founder of SES ESOP Strategies, to discuss these in a conversation moderated by Will Swearingen, Zweig Group’s director of ownership transition advisory services, and learned a lot about the “state of the ESOP.” The key to an outstanding ESOP conversion: overspend compared to the industry for internal communication. The power and potential of the ESOP as a long-term retention tool requires constant education and reinforcement. Some of the fastest-growing firms in our industry are ESOPs, and they also win Marketing Excellence Awards – these firms know the importance of communication.
- Remote work was a major topic of conversation at ElevateAEC. Unfortunately, it still appears to be seen as either “good” or “bad” by many firms, versus being discussed as a fact and circumstance and a possible opportunity (though the cultural impact and massive mentoring challenges cannot be ignored either). Much of the discussion has been about the impact of how to handle this as firm owners and leaders – surprisingly little attention at the conference this year was focused on simply capitalizing on the business case for either option and what this could do for designers in creating the offices of the future (though we realize the discussions are happening, it was notable to me that they were not the focus of the panelists and speakers at our event this year). It is my perception that the firms that focus on investing in office design that results in physical offices serving as a magnet for employees and a place people want to spend time in to collaborate and learn within are the ones we see as best-positioned to stay ahead of the turnover metrics (I’ll even wager that this will fare better than the firms that spike up bonuses). We’ll see who wins our Best Firms To Work For accolades in the coming years (overlaid with our Hot Firm list to see who is continuing to be able to grow and thrive) before this is something I feel like we have a grasp on as advisors to this space. That said, in the small sample set of conversations I have with firm leaders, the companies that have issued strict mandates and are unwilling to compromise may (or may not) risk their place as an employer of choice in the coming years.
- Indulge me in another acronym: ESG, or environmental, social and governance. I knew the concept, but only understood it after working with ADEC for a few years as their growth has continued to explode. A recent direct acquisition by Boston Consulting Group is evidence of the market demand for ESG expertise and, frankly an opportunity for environmental design firms to expand their expertise to include a whole different variety of “consulting” as ESG expectations continue. We’re also tracking WELL-building technology and the other technology investments being made to ramp up efforts within the built environment to align with sustainability expectations.
- The ElevateHER Symposium as well as our closing keynote by Zhetique Gunn and Melvalean McLemore, AIA highlights the real need to be a more inclusive industry. The power dynamic between employer and employee has totally shifted; there is so much demand for services and there is a real need for businesses to be flexible, adaptable, and committed to true employee well-being. Burnout is real and the professionals within AEC have wildly transferrable skills – we have to be more protective of our staff and their work-life balances or available staff will dwindle. In an ecosystem with rapidly increasing compensation expectations and often a much-delayed ability to increase fees to offset these increases, it will be the firms that actually commit to culture and can find ways to be welcoming to all employees who can drive the company forward. Our ElevateHER cohort teams have been three years ahead of the curve on this; join us next year to be part of the future.
- We had just two breakout sessions with poor attendance: one on cybersecurity and one on the metaverse. That makes digital transformation and, broadly, enterprise risk management absolutely no less fundamentally important. Don’t be one of the firms that waits until they are a statistic to pay attention to these topics.
My job compels me to wrap up this article with some actual advice. With so many variables in the conversation this year that are novel to most principals of AEC firms, the very best advice I can give you: first, this is the time to invest in a thoughtful board of directors that includes outside perspectives. Second, if your firm can really listen to and harness the Gen Z energy and the generation’s insistence on a standard of living that is more sustainable than what may have been tolerated before (“back in my day”), you will be a trailblazer. Find someone young with wild strategic potential in your firm and bring them into executive conversations “before they are ready.” Trust me that this is an important feature of tomorrow’s fastest-growing firms.
There were many more discussions at our event that were truly thought-provoking and that will come back up over the next eleven months before we gather (and golf) together in Frisco, Texas, for ElevateAEC 2023!
Jamie Claire Kiser is managing principal and director of advisory services at Zweig Group. Contact her at firstname.lastname@example.org.