Sound management, market verticals, and company culture – what buyers are looking for within the AEC industry.
Over the past few years, the AEC industry has become a highly acquisitive one. For owners looking to sell their business, it can be hard to know what exactly prospective buyers find attractive and unattractive. So how do we set ourselves apart from the pack and stand out as an enticing investment?
In my work as an M&A consultant with Zweig Group, I’ve seen countless owners struggle to pin down what will make their business valuable to potential buyers. Through research, experience, and interviewing experts in the industry, here are a few universal value drivers I’ve found:
Management. David Ettenger, from Bow River Capital, a private equity firm focused on investing in the lower middle market, says, “Management is key. Bow River likes to truly partner with management, aligned both financially and strategically. With the AEC industry being a service-based business, so many of the relationships lie with management. We find a strong team helps provide a core for growth.”
Market verticals. A great end market is something buyers also consider. “If we get the market vertical right, a lot of the risk factors go out the window,” Ettenger says. “For example, anything healthcare right now seems to be growing and selling at high multiples, but energy service firms not so much.”
Understand the buyer’s culture and strategy. The AEC space is highly acquisitive. In that type of environment, a buyer has to state their strategy, in simple terms, and focus only on firms that fit their culture. Ryan Thorpe, from RTC Partners, says, “When a buyer doesn’t do this, their people don’t work well together, culture withers, and productivity suffers. Similarly, a seller must know the buyer well enough to believe their business and people are better off as part of the acquiring company. They must like and respect the new folks.” Sellers should find out if the buyers know what they are doing. How many firms have they acquired and how have things turned out? Try to speak to the previous firms if you can.
Here are a few bonus nuggets of wisdom from Clay Fox, also of Bow River Capital:
How does an owner attract a strategic buyer? “When we buy a company, we always have the exit down the road in mind. It is hard to gauge what a strategic company will want, but most of the time they are buying assets and location. If you have a market position they want and are segmented in a way to provide value to them, then they will potentially look to buy. A financial buyer, like a private equity firm, can help position your company for a strategic sale if you are not quite ready today.”
What are some of your firm’s acquisition objectives? “Bow River’s ultimate goal is to make a return on our investment. In doing so, we look to grow the company substantially while in our control, both organically and through additional acquisitions. Management of the company is left in the hands of the experts, and we will provide advice where needed.”
Noah Hunt is a consultant with Zweig Group’s M&A services. Contact him email@example.com or at 479.856.6244.