Engineering Inc. - May/June 2008 - 12

A “Acquisitions have accounted for roughly two-thirds of our growth since the mid-1990s,” says Franceschini. “It has been a very successful strategy.” One not without risk. The business world is littered with the shipwreck debris of mergers and acquisitions (M&As) gone awry. Like a jeweler in search of the perfect diamond, he says, successful corporate marriages rely on attention to detail. “The reality is that a deal must amount to more than the sum of its parts,” explains Franceschini. “The goal is to create an equation where one plus one equals three.” Even in the shadow of the recent economic downturn, many companies are eyeing M&A deals—either as buyer or seller. “Acquiring companies often are looking for increased revenue streams, while those positioning themselves to be sold usually are looking to leverage their expertise into greater financial and business opportunities,” says Andrew J. Sherman, a senior partner at the Washington, D.C.–based law firm of Dickstein Shapiro. Whereas a spate of high-profile M&As in media and technology sectors have come under fire for creating a monopolistic culture responsible for limiting customer options, increased merger activity in the engineering industry isn’t likely to yield the same criticisms, says Ray Kogan, president of Kogan & Company, a McLean, Va.–based consulting firm. “Within any local or regional market, there are plenty—many engineering firm principals would say, too many— firms that are qualified to do almost any project. Consolidation in the industry through mergers and acquisitions may tend to ‘prune the tree’ of those firms that might not otherwise survive in the long term, but I don’t believe that any consumers of engineering services will be hurt at all. In fact, typically acquisitions result in a stronger firm that can bring more capabilities to any given project or client.” Though it’s difficult to get an accurate read on the raw number of M&A transactions under way, industry-watchers say 12 ENGINEERING INC. MAY / JUNE 2008 cquisitions have accounted for roughly two-thirds of our growth since the mid-1990s. It has been a very successful strategy. Building on Success tony franceSchini Stantec, inc. deals are likely to continue in substantial numbers in the months and years ahead. But these transactions can quickly spell doom if they are not conceived and executed carefully, legally and sensibly. There are, among other things, strategic issues to mull, cultural factors to weigh, financial matters to examine and human resources concerns—including pay and roles—to address. Even when companies engage in the required up-front analysis and conduct comprehensive due diligence, there’s no assurance the deal will work. “There are a lot of unknown variables,” says Kogan. “There are no guarantees.” T ypically acquisitions result in a stronger firm that can bring more capabilities to any project or client. ray KoGan KoGan & coMPany Mergers and acquisitions have long played an important role in the business world. Buying, selling and combining assets enables organizations to grow, while improving their market position and financial standing. Rather than create a new product, service or business line from the ground up, acquisitions provide a gateway to instant competition. Well-orchestrated deals can fill gaps and address niches that would otherwise require intensive recruiting, training and management—not to mention steep acquisition costs. Colvin T. Matheson, managing director of Matheson Financial Advisors in Falls Church, Va., says a number of factors have contributed to the recent flurry of M&A activity. A shortage of talent and a backlog of projects have made companies more conscious of acquiring talent by purchasing other companies. And an unusually fragmented market has fueled demand for strategic pieces that can help a company boost its market share and revenues. Age is another contributing factor, says Matheson. Many principals of small engineering shops are approaching retirement. Though they’d like nothing more than to cash out and begin enjoying their golden years, many are finding that the next generation of leaders often lacks the capital or experience to confidently take the reins. “There are a lot of cases where there’s a real talent deficit,” says Matheson. The second tier of executives is adept at managing projects, but it isn’t ready to run a firm. It comes down to a basic question: Do we close the doors or look for someone who can buy us out? At Miami-based PBS&J, President Todd Kenner says he receives two to three inquires a week—almost all from small firms looking for a suitor. The firm also receives an occasional feeler from a larger company interested in exploring a merger or acquisition. Kenner says PBS&J has completed 18 deals since 1990 and “looked at” hundreds of firms over that span. “One of the

Engineering Inc. - May/June 2008

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