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Selling an Architecture Firm
25/8/2019 - Market Value
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http://emerge-ma.com/data/uploads/Industry-Report-Selling-an-Architecture-Firm.pdf

An estimated 78% of firms plan on selling within the next 5 years which will flood the market.

Industry Inclusion

Architectural firms fall into what’s known as the A&E (Architectural and Engineering) and sometimes AE&P line of business of the professional services sector. This information is limited only to Architectural firms and does not include Engineering firms. 

Factors Affecting Value

  • Single or multiple disciplines that dominate a particular city or region
  • Multiple offices
  • Mix of public and private sector clients
  • Formal management structures, governance policies, and IT/financial reporting systems
  • Strong backlog
  • Not too “top heavy” from a management/talent standpoint
  • Exceeding industry growth of 2.3% annually

Industry Trends

Consolidation - The need for a steady supply of contract work and increased customer demand for a variety of architectural services have led to consolidation within the industry. Larger companies tend to be stronger financially and can offer customers a diverse skill
set, resulting in increased revenue. Consolidation also can enhance technical services across end markets.

Design/Build Contracts - Traditionally, the design and building of a project were handled by separate architecture and engineering firms. To compete for design/build contracts, more companies are
integrating architectural and engineering teams to work together in the design/build process.

Skills Gap - As a result of the late-2000s recession, many architects in the US lost their jobs and didn’t return to the profession. Since then, the industry has been successfully attracting and training
young architects while also retaining highly skilled ones. But the absence of middle-range architects is creating a noticeable gap in talent among some firms.

M&A and the Industry

The industry in general is highly fragmented. Recently noted, an estimated 65% of firms had fewer than five employees and only 4% of firms had more than 100 employees. For some reason, this industry is more susceptible to the “baby boomer selling the businesses” phenomena.

When selling an architecture firm there is typically an extended transition time of 3 to 5 years versus 1 to 2 years in other types of industries.

eMerge M&A’s internal and proprietary Buyer List for Architecture firms includes 219 strategic acquirers, plus buyers for 38 closed transactions in the last few years, plus 49 Private Equity Groups (“PEG’s”) that own Architecture firms, plus 110 PEG’s that have a stated interest in Architecture firms.

Since 1989, we have consulted, valued and worked with 29 architectural firms. Of those that have chosen to go to market, we have closed a transaction in every occasion. One transaction was a stock sale and all the rest were asset sales. Our data shows that revenues ranged from $2.4 million to $40.3 million and multiples of EBITDA for the sale prices ranged from 3.56X to 23.8X.

The Buyers

Full-service architecture and engineering (AE) firms are the most interested buyer for architectural firms. However, we have seen other architectural firms, MEP companies, engineering companies, and private equity groups active in this line of business.

Given the planned exodus of baby boomers in this industry and the market conditions now owners of architecture firms are encouraged to start the M&A process immediately.