June 7, 2023

2023 M&A Mid-Year Update

Mergers & Acquisition Team Spotlight
Image with maroon background and red topo design. The text reads Acquisition Team Spotlight. Image with maroon background and red topo design. The text reads Acquisition Team Spotlight.

Throughout the years, our team has completed multiple acquisitions. All have focused on delivering positive outcomes for employees, clients, and our combined businesses in close collaboration with the firms' owners.

What is the Current Acquisition Climate? 

Our team identified three key trends currently present in the AEC acquisition realm. 

1. The AEC industry continues to experience consolidation as firm founders pursue external transition options, private equity sees the space as an attractive investment, and the largest firms race for scale to compete on significant infrastructure and power projects.

2. The introduction of institutional private equity to the AE space brings significantly more investment, therefore; 

  • Brokered deals are more competitive and common, driving higher valuations across the industry.  
  • CEOs are inundated with unsolicited offers from both strategic buyers and financial sponsors. 
  • More entities are interested in purchasing AEC firms driving higher pricing, which is complemented by the commonality of record financial performances in 2020 and 2021.  

3. Although the risk of a recession and its impact on some end markets is real and potentially substantial, it has yet to depress valuations. This can lead to a mismatch between buyer and seller valuation.  

The acquisition opportunities have arguably never been better or more complex to navigate. As a strategic buyer, we focus on much more than returns-related outcomes. Our investment approach is measured and includes an in-depth evaluation of culture, leadership, risk, financial performance, and strategic fit. When assessing a firm's leadership, it's essential we understand their motivation to engage in the conversation. 

What is an Important Topic to Explore in Acquisitions?  

At Westwood, motivation is a crucial topic to explore in every acquisition. A common motivation is the need for more people, which was commonly stated by sellers last year and still holding strong midway through 2023. As in, "We'd like to join a larger firm with many more people we can use!" Cue the record scratching to a stop.

In every conversation I've had with AEC leaders of other organizations, extra people don't exist. And it's the same for our team. We are all constantly hiring while keeping a watchful eye should a recession start creeping over the horizon.  

Regarding motivation, we need to take the concept of obtaining "extra people" off the table, as neither firm can genuinely offer that as an immediate benefit. The better solution is for the combined firms to focus on actions that strengthen the overall team and lead to greater capacity down the line. There are three parts to this.  

1. Education 

Engage in conversations to connect the buyer's and seller's teams at the business unit level. The ongoing dialogue creates awareness of "who" and "what" the combined organization is now comprised of and who to reach out to for help. With a larger team, there will naturally be more flexibility that can add up to untapped capacity over time, and may involve redistributing duties or revising some roles.   

2. Organic Growth 

The second part is quickly pivoting from the step change of acquired growth to a concentration on organic growth. The effort relies on leveraging systems in place that support recruiting, development, and retention of the team. Broad exposure at career fairs and industry events, investing in internships and co-ops, presenting thought leadership on cutting-edge projects, and communicating career paths for employees of all walks and aspirations are critical to building energy around organic growth. In time, that enables the combined organization to achieve what may have been initially desired through a new partnership but so hard to obtain; a few (hundred!) extra people. 

3. High Performance 

I cannot overstate how many positive outcomes flow from a financially sound, growing, and profitable firm. Though it requires hard work, tough decisions, and discipline, a company that exceeds industry benchmarks has more resources to reward employees for their efforts, invest in innovative technologies, and pursue strategic hires and acquisitions. These characteristics also tend to attract the best people in the industry, as we all inherently want to play for the winning team. A story of continued success is a tremendous recruiting capability! 

2024 and Beyond- What's Next for Acquisitions?  

Our M&A team continues to monitor the economy, watchful for trends that may impact firm valuations and our strategic investment portfolio. Maintaining a disciplined approach to creating new partnerships and understanding the motivations on both sides of the M&A table will always be crucial to ensuring a multifaceted fit!  

About Aaron Tippie, PE  

Aaron Tippie, PE, Chief Acquisition Officer, joined the team over 17 years ago to support growth in renewable energy. He managed national market leaders in the creation and execution of business development and operational plans, building lasting client relationships and exploring new product and service opportunities. In 2021, Aaron transitioned to his role as CSO. In his new position, Aaron is responsible for the acquisition program, working with a talented team on deal origination, valuation, diligence, and integration.

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