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A/E's Buying or Selling – Helpful Tool
There are many reasons and drivers for mergers and acquisitions (M&A) activity for architect and engineering firms. With rather strong economic conditions, transactions are being driven by a desire for service diversification and merging or acquiring another firm to become a more “full service” provider offering a full array of services. Another reason, duirng strong economic conditions, it is a great time to obtain top dollar for your firm.
Great care and consideration is needed when merging, selling or acquiring another firm. How a firm appears on paper and how they are in practice can vary greatly. If proper and complete due diligence is not performed, a firm can significantly decrease their ability to perform services in a quality manner that in return dramatically increase risk and liability exposures.
Reasons architect and engineering (A/E) firms would sell or buy:
Why Sell
- Maintain continuity that preserves client relations
- Growth strategy
- Gain financial return on firms investments
- Induce key people to stay with the firm
- Gain financial security before retirement
- Avoid the difficulty of closing down a multi-client, multi-project practice
- High valuation based on strong market conditions
- Exit strategy for retirement
Why Buy
- Access to new geographic areas
- Alternative to recruiting
- Access to new clients
- Alternative to cold starting an office
- New or complementary services
- Increased career opportunities; creating a broader platform
- Add management talent
Due Deligence
Mergers and acquisitions (M&A) activity comes in waves based on market conditions and economic drivers. Well-planned M&A deals that are executed effectively can be excellent tools for transitions, exit strategies, and growth. However, if not done correctly, they can dramatically impact a performance, profitability as well as significantly increase risk.
Risk Assessments - Selling or Buying
Weather considering to sell or buy a firm, it is essential to obtain a better understanding of a firm in key categories of risk and liability as well as practices and operations. Risk assessments has been described as similar to conducting a peer review, however the process focuses on the causes of risk and liability exposures within an organization.
Risk assessments conducted by SmartRisk (SR Risk Profile) have been developed based on over 25,000 claims and over $850 million dollars in claim expenses. The process includes a computer-based risk questionnaire and interviews with key members of the organization (Pro10X).
The Pro10 and Pro10X risk assessments evaluate applied practices and operational procedures in the following categories.
- Experience & Staffing
- Contracts
- Project Team Selection
- Project and Client Selection
- Project Communication and Documentation
- Training
- Instruments of Service
- Billing and Invoicing
- Project Close Out
- Risk Management Culture
Upon completion a firm receives a customized, firm specific SR Risk Profile Report including category risk ratings and recommendations as needed to help manage and mitigate future risk and liability exposures. Firms also receive a risk management plan outline and certificate of completion demonstrating completing the process.
Valuable Tool
Risk assessments have been proven to be a valuable tool. When selling, the independent process can demonstrate to potential buyers the firms overall risk profile including risk ratings in specific categories. If concerns are identified in the process, those can be corrected. If a firm is interested in purchasing another firm, the acquiring firm obtains a better understanding of applied practices and operational procedures that could impact risk including information on past claims, project types and lessons learned that have been implemented within the organization.
You are welcome to forward this newsletter to others who may be interested.
If you are interested in obtaining more information about SmartRisk, and services offered, please contact us.
Thank you.
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