M&A for architecture and engineering firms is accelerating, fueled by strong industry growth and rising buyer interest. The sector is projected to grow at a 10% annual rate, driven by demand for infrastructure, development, and specialized technical services. This growth fuels an ongoing need for skilled professionals and gives rise to new firms – many of which become acquisition targets as they mature. With over 10,000 small and lower middle market A&E firms across the U.S., the industry remains highly fragmented, making it an active space for consolidation.
The universe of buyers of A&E firms with revenues between $1 mil to $10mil most commonly includes:
- Independent Entrepreneurs
- Independent A&E (or related services) Firms
- PE-owned A&E Platform Firms
Comps below represent a selection of smaller engineering firms that have been acquired by these types of buyers in the past five years. The data shows a relatively wide range of transaction outcomes, impacted by the unique financials, conditions and deal structures involved with each sale.
| Average Revenue ($000) | N | TEV/ EBITDA Range | TEV/EBITDA Avg. |
|---|---|---|---|
| $3,000 | 22 | 2.8 – 4.3 | 3.6 |
| $7,800 | 11 | 3.1 – 7.5 | 5.0 |
| $18,400 | 24 | 4.6 – 6.4 | 5.5 |
Sources: DealStats, GF Data, GCF Data Peercomps
How Buyers Evaluate A&E Firms
In order to maximize the potential sale price of their businesses, owners should understand the ways in which these buyers evaluate and value new acquisitions. Each buyer applies their own unique value equation, and multiple offers for the same firm often vary by 50%+ from lowest to highest. Buyers in the A&E space commonly emphasize the following areas:
Financial Performance – Does the firm demonstrate healthy project backlog, historical sales trends, and profitability?
New Business Development – Is there a clear and reliable path for the buyer to sustain and grow new demand for the business post-merger? Does a sales and marketing program with tracked results exist?
Client Relationships – How healthy and stable are the firm’s current key client relationships? How concentrated is revenue with the top few accounts? Where are opportunities to expand current accounts?
Market Expansion – Does the acquired firm open up new geographies or sectors/verticals for the buyer’s business? Are there new skills or capabilities that will enhance the buyer’s service offerings?
Transferrable Talent – How will the acquired firm’s architecture and engineering experts contribute to the success and growth of the buyer’s company? Do they fill critical growth gaps for the buyer?
Leadership Retention/Succession – Does the success of the transaction depend upon the retention of existing leaders or licensed experts from the acquired firm? If so, is this team secure?
Operational Excellence – Are the firm’s systems, processes and financials managed in a consistent, efficient and professional manner?
The on-going demand for acquiring mid-market Architecture and Engineering firms offers significant opportunity for successful owners in this space and we expect this trend to continue. Sale prices and the overall success of these transactions can be very positively influenced by owners who proactively prepare. If you are an owner considering an exit or preparing to sell your A&E firm, please contact us to schedule a complementary consult.