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Merger Mania

Dear Dave
It seems as if every couple of weeks we read or hear of another engineering or architectural firm announcing a merger, acquisition or some sort of combination. Is this a national phenomenon? What’s behind all this activity? Do you see it continuing?

Dear DC
I agree, there are a lot of mergers and acquisitions (m/a) taking place within the profession. While I can’t offer you specific numbers, I’m sure every reader of this column has witnessed similar activity in his or her area of the country. Mergers and acquisitions are bound to be with us for the foreseeable future, as long as practices are faced with a roaring economy, demanding clients and ongoing staff shortages.

Historically, the most common motivator behind this trend was firm owners reaching retirement age and finding themselves with no qualified or interested insiders to transition their firms to. While this is still a significant factor, today’s m/a activity is driven by a variety of reasons.

Some firms are increasingly running into clients who demand the perceived security of selecting only larger firms, or firms with a broader palette of services, or multiple in-house disciplines to do their projects. Rather than grow organically from within, m/a can be a shortcut for bulking up to meet client size or scope of service requirements.

Similarly, firms may merge or be acquired in order to enter an entirely new client market for which they have no experience. They seek the instant expertise that can come from joining forces with a firm who has the staff, track record and project history in the markets they wish to crack.

Firms may merge with or acquire a firm to establish an office in another city or area of the country as part of a strategy to diversify the firm geographically to lessen the impact of a regionalized economic downturn. It is often difficult to enter a new area of the country. Some communities can be quite parochial about “outsiders”. Joining with an established local firm can open local doors sooner than simply renting office space and starting from scratch.

Finally, some firms combine as a tactic to cope with the critical shortage of quality professional staff. Typical scenario: We have the work; you have the staff. Let’s combine our two firms, eliminate redundant administrative and facility expenditures, and become a much stronger firm together than either one of us would have been alone.

Some words of warning. Working out the nuts and bolts issues of mergers and acquisitions is not the hard part. There are plenty of consultants, attorneys and accountants who can provide the necessary support and guidance to successfully address the business details. What consistently generates the greatest amount of heartburn, post m/a, is the people part. It has been my experience that potential partners spend far too little time aligning the emotional and cultural aspects of bringing their firms together. Just like a good marriage, the firms must share a reasonably common set of values. This aspect of any potential merger or acquisition needs to be thoroughly explored and fully understood by all. Reconciling noticable differences must be a precondition to a final decision to proceed.

Wahby and Associates