What’s your firm really worth?

Mar 01, 2016

Screen Shot 2016-03-01 at 1.43.23 PMLeaders in the A/E/P and environmental consulting industry need to know their firm’s value.
Many architecture, engineering, planning, and environmental consulting firm leaders don’t have a solid grasp on their firm’s value. But, if you’re a firm owner, you can’t risk not knowing this information, because the firm’s value factors into several situations, including:
  • Establishing a price for transactions under shareholder or buy/sell agreements
  • Establishing a price for a merger, acquisition, or sale
  • Developing a plan for ownership transition and/or management buyouts
  • Establishing share prices for employee stock ownership plans
  • Determining the fair-market value for gift and estate tax issues
  • Preparing for an initial public offering
  • Supporting litigation efforts, such as partnership dissolutions, disputes, and marital divorce
  • Other corporate purposes, such as division spin-offs or divestitures
Enter Zweig Group’s 2016 Valuation Survey of A/E/P & Environmental Consulting Firms. Though not a substitute for a formal valuation or a consultation with a business appraiser, the Valuation Survey is a must-have resource for any firm owner interested in determining the worth of his/her company.
The Valuation Survey is broken down into three parts: Business Valuation Considerations, 2016 Survey Results, and Case Studies. That’s right, in addition to presenting readers with the overall survey data – broken down by firm type, size, region, growth rate, and more – Zweig Group provides actual valuation information for each of the 141 firms (43 percent of which are multidiscipline engineering firms) that have participated in the survey since 2013. That’s real- world information on real-world firms that you can’t access anywhere else. Zweig Group also provides the actual formulas that survey respondents’ firms use – if they opt against employing an external appraiser – in addition to its own Z-values, which measure total invested capital and equity values.
Among the statistics that readers will find most interesting are comparisons of the TIC value per employee. Because A/E/P and environmental consulting firms sell staffers’ time, it is generally accepted that people are firms’ most valuable assets. Just as some firms generate more revenue per employee than others, some are more valuable than others in proportion to their staff sizes. The median TIC value per employee for firms overall has steadily increased since 2006 to an all-time high of $65,498 in 2016. But the Valuation Survey goes even farther, breaking this statistic – and all of the statistics it presents – out by firms’ types; staff sizes; years founded; headquarters’ region; growth rates; reasons for valuation; who conducted the valuation, when, and by what means; net service revenue, profit, EBITDA, and backlog projections; and minority versus controlling interests.
For example, the 2016 Valuation Survey shows the highest average TIC values per employee for:
    • Single-discipline engineering firms
    • Firms with less than 25 employees
    • Firms founded in the past 16 years
    • Firms based in the South Central United States
    • Firms with moderate growth rates
    • Firms that performed the valuation for the purposes of a sale/merger
    • Firms that employed a consultant or accountant to perform the valuation, which was conducted via an appraisal in 2014
    • Firms that project at net service revenues; profits; and expenses before interest, taxes, depreciation, and amortization for the next fiscal year
    • Firms that project a growing backlog in the next fiscal year
  • Firms with a controlling interest
Does your firm fit any – or all – of these categories? If so, chances are its total invested capital per employee is pretty high. But, you can’t know for sure until you conduct a valuation, or at least apply the formulas in the Valuation Survey to your firm to obtain a general idea. If you have any questions about the 2016 Valuation Survey or any of Zweig Group’s research publications, visit zweiggroup.net/sandbox/surveys.php or email me at abennett@ zweiggroup.com. ANDREA BENNETT is Zweig Group’s research and publications manager. Contact her at abennett@zweiggroup.com.

This article is from issue 1139 of The Zweig Letter. Click here for to get a free trial.

For more information about valuation consulting, email jkiser@zweiggroup.com or check out an excerpt from the 2016 Valuation Survey.

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.