Research consulting firm Zweig Group (formerly ZweigWhite) has released a report that found a rise in the number of architecture and planning firms considering a merger or acquisition (M&A) in the coming years. The 2015 Merger & Acquisition Survey of A/E/P and Environmental Consulting Firms (Zweig Group, 2015), the 25th edition of the annual publication, also found that 78 percent of architecture and interiors firms, and 68 percent of all participating firms, reported that their strategic plans for the next five years include either a merger or an acquisition. The survey also found that the number of firms that are considering acquisitions has increased every year from 30 percent to 42 percent from 2012 to 2015, indicating a growing economy. That statistic topped 50 percent between 2009 and 2011, reaching a high of 61 percent in 2009. “This tells us that firms are planning for a future with more M&A activity and are preparing accordingly, even if they aren’t evaluating a purchase (or merger/sale) right now,” Zweig Group director of merger and acquisitions services Jamie Claire Kiser said in an email to ARCHITECT.

In a 2011 ARCHITECT column, Hobson Hogan, then a principal at ZweigWhite, likened approaching a merger to dating: Firms should scope out the field to gauge interest and consider the terms of the prospective deal, such as timing and personalities. (Firms not willing to formally commit should consider strategic alliances in which there are no monetary exchanges, and each practice can maintain its autonomy, offices, and name.)

When Zweig Group drilled into the survey responses by firm type, it found that full-service architecture and engineering (AE) firms are most interested in buying another firm, with 67 percent of AE firms currently considering an acquisition. Meanwhile, architecture or interior design firms are the least likely out of all of the surveyed firm types (which also include single-discipline engineering, multidiscipline engineering, and environmental consulting) to consider buying another firm.

The Atlanta Falcons stadium, designed by HOK, which completed its acquisition of Kansas City, Mo.–based 360 Architecture in January.
HOK The Atlanta Falcons stadium, designed by HOK, which completed its acquisition of Kansas City, Mo.–based 360 Architecture in January.

Kiser says that when compared to other firm types, architecture and interior design firms are more interested in merging or selling to another firm. “The industry’s structure continues to transform to a more integrated business model,” she says. “The top performers will be those that embrace change and are able to respond quickly, nimbly, and decisively to the evolution of the industry. Consolidation will become increasingly common as firms seek to either serve as a ‘one stop shop’ and provide full-service design, building, and engineering services, or seek to specialize and find niche markets to fuel growth, such as green design.” The survey’s most cited reason for firms considering the purchase of another firm is to enter new markets.

Based on the economic indicators for the design market, as charted by the AIA’s latest Architecture Billings Index, the design industry has rebounded since the recession, and the forecast for the next few years looks strong. As such, firms can afford to take more risks to consider M&A while interest rates for borrowing remain low.

In addition to the industry’s shifting business models and a growing economy, Zweig Group also expects to see more small and mid-sized firms hit the market in the coming years as leaders in the baby boom generation prepare for retirement. “Especially in smaller firms with few owners, leaders are beginning to plan for their transition out of the business,” Kiser says. “Many business owners may have delayed retirement during the recent recession and are now starting to consider their exit strategies.” This trend bodes well for potential buyers, as they will have more firm options to pick from. And those potential purchases will likely be healthy, well-managed firms because they have endured the Great Recession.

“The combination of the recent trimming of the fat in the industry, coupled with a strong outlook in the future and access to funds means that this is a great time to consider strategic acquisitions or joint ventures,” Kiser says. “The greatest risk that firms face today is doing nothing—sitting on the sidelines while the large firms continue to acquire, and the small firms develop niches.”