Lack of Transition Plan Puts Design Firms in Peril

Fayetteville, Ark. – A crisis could descend upon many design firms because aging baby-boomer owners have not taken the necessary steps to assure their companies will go on after they exit.

A staggering 63 percent of A/E/P and environmental consulting firms don’t have an internal ownership transition plan, according to ZweigWhite’s 2011 Merger & Acquisition Survey, which is comprised of comprehensive merger and acquisition statistics and transaction data for the architecture, engineering, planning and environmental consulting industry.Ownership transition drives the M&A market, and selling as an exit strategy ranked as the main goal among potential sellers responding to the survey.

This lack of an internal ownership transition plan is dangerous, noted Jeff Clark, managing director and principal of the M&A team for ZweigWhite, a premier management consulting, publishing and training firm for the A/E/P and environmental industry.

“If you don’t have an internal ownership transition plan in place,” he said in the April 4 issue of The Zweig Letter, “your second-tier management could be seen as a red flag, and the perceived value of your firm may very well be diminished in the eyes of sophisticated third-party buyers.”  

Stuart K. Jacobson & Associates, Ltd., an engineering outfit in Northbrook, Ill., is a prime example of the dilemma facing many in the industry.

“I am looking to retire shortly and current employees—some of them here for more than 20 years—are not interested in buying me out,” Jacobson, the firm’s president, told TZL, ZweigWhite’s weekly management publication.

ZweigWhite Principal Hobson Hogan urged baby boomers like Jacobson to act fast. “An average ownership transition plan takes five to seven years to complete,” he said. “It becomes difficult to implement a plan with people in their mid- or late-50s, because by the time they complete the purchase, they have to turn around and sell. You need five to seven years to buy, and five to seven years to own shares before you begin your sell down.”

The recession delayed many ownership transition plans, said James Boyer, vice president and CFO with David Miller/Associates, Inc. in Lancaster, Penn.

“Our firm is currently in the middle of an ownership transition that has stalled due to the economic downturn,” he said. “I still think now is a good opportunity for buyers who are confident that their firm is moving in the right direction, but the outgoing shareholders need to be flexible and realistic regarding the stock value.”

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