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To merge, or not to merge your design practice?

Should you merge your design business? It’s a big decision and can come with plenty of pros and cons. Robert Peake shares some of the thinking behind one of your biggest business decisions.



BY

July 18th, 2018


In Australia* there are approximately 10,800 architecture, engineering, planning and related consultant and design businesses*

Of these:

  • 60 per cent of practices have less than five people,
  • 80 per cent of practices have less than 10 people, and
  • 90 per cent of practices have less than 20 people.

This is just under 10,000 businesses who have a heavy reliance on the principals to bring in the clients, recruit and manage the people, design and deliver projects and control the finances.

Ultimately, it doesn’t leave a lot of headspace, time or capacity to build and grow the practice. It also doesn’t allow much time to deal with success and the increasing risks that result from demanding contract conditions, finding and retaining the right people, lower fees, investment needs, and the changes in an increasingly global economy.

Most architecture, engineering and consultant practices have a desire to develop their businesses and watch their practices prosper. But what’s holding them back from achieving this?
Today, some forward-thinking businesses are considering how they break the mould. As BDP’s alignment with Japanese consultant Nippon Koei in March 2017 demonstrated, size, it seems, does matter.

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Most architecture, engineering and consultant practices have a desire to develop their businesses and watch their practices prosper.
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The benefits of merging

Merging – the coming together of two businesses and becoming a new business – is an increasing trend worldwide, an approach that Australia is slow to embrace. In our region, we are a long way behind what’s happening in other parts of the world – in particular, Asia and the US. In the past six years alone, approximately 600 architecture and engineering firms have been either sold or merged in the US.

It is clear that the total number of architects, engineers and designers in Australia far exceeds the commercial demand for services. There are too many businesses competing for a diminishing service in an increasingly competitive marketplace.

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It is clear that the total number of architects, engineers and designers in Australia far exceeds the commercial demand for services.
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The number one concern for architectural leaders is the diminution of fees and services – the consequence of high and increasing competition for clients and projects from a myriad of sources. This includes other professions, the construction sector, the impact of technology and the forces of globalisation.

The advantages of merging/combining your business in today’s increasingly competitive and oversupplied marketplace include:

  • Increasing the client base,
  • Stronger and more talented leadership,
  • Increasing your skill base,
  • Increasing productivity,
  • Economies of scale,
  • Increasing the capacity to invest in technology, innovation and systems,
  • Building scale to engage experts in business,
  • Improving the firm’s competitive position,
  • Expansion into other geographic regions,
  • Adding new practice areas,
  • Greater capacity to devolve and spread the client relationships,
  • Diversification of work to mitigate the risk,
  • Sharing the workload and improving work/life balance,
  • Increasing your influence in the marketplace, and
  • Succession and exit strategy.

Although it is often overlooked in our industry, one of the greatest strengths of leaders of design businesses is their innate capacity to work with others and collaborate more effectively than most professionals. Add to this the reasons above, and merging becomes a recipe for success!

Our advice is to start with the premise that you should merge your practice – not why you shouldn’t. By merging with like-minded businesses, you will accelerate your path to success and break the innate tendency to incrementally improve the way you do things.

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By merging with like-minded businesses, you will accelerate your path to success…
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As Nick Schumann, UK Board Member Rider Levett Bucknall and ex Schumann Consult says, “After three and a half successful years developing and growing SCL we have now merged with Rider Levett Bucknall, a global multi-service line consultancy, which will provide further opportunities for success. In my experience, a merger gives a better chance of having a long-term influence and continuing business as usual.”

The downsides

Architecture, engineering and consulting businesses, in particular, are different from most in that each has a clear identity, a distinctive design proposition and unique culture. Merging with another company and maintaining that uniqueness is ultimately seen to be especially difficult to overcome.

Below are a few of the primary reasons against a merger that we hear from our clients at Management for Design:

  1. Leaders not wanting to lose control of design and clients,
  2. Lack of outside trusted advisors — ‘who do I go to?’,
  3. Answering and being accountable to others,
  4. Inability to step away from the day to day,
  5. Not knowing where to start and how to go about it,
  6. Not knowing potential partners/targets, and
  7. Culture of independence and freedom.

Let’s look at some of these reasons in more detail.

Losing Control

‘Control’ is a crucial factor for the sense of satisfaction and accomplishment that leaders achieve from running their own practice and producing their own work. The ability to influence your own environment and change what you don’t like is critical to the sense of satisfaction an owner gets from their work. Unfortunately, when you are part of a team you surrender some of that control in exchange for the resources and support of your team.

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If you are insistent on not having to argue your decisions and explain your reasons every step of the way then you will hold your business at its present level.
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If you are insistent on not having to argue your decisions and explain your reasons every step of the way then you will hold your business at its present level. You can’t expect your business to grow. If it does, and you are holding onto control, then you are embedding yourself in a job and not building your business as a result.

Inability to step away from the day to day

More often than not, design business leaders are engaged in the here and now – the current and next project; the current and next client etc. Yet, at the same time, they bemoan the fees they are receiving for their services, the lack of business acumen and project management expertise in their businesses and wonder why they’re not attracting and retaining great people.

The ability to step away from the here and now is typically not innate to firm leaders – “there is too much to do!” As a business leader, this is your challenge – more notably, your obligation – to your clients and people. They are looking for you to discover and implement innovative ways of working, designing, collaborating, more exciting work and more opportunities.

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The ability to step away from the here and now is typically not innate to firm leaders – “there is too much to do!”
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Lack of outside trusted advisors

Simply put, there isn’t a great deal of merger and acquisition expertise readily available in Australia in the architecture, engineering and consulting sector. Partners that have expertise and specialism in these businesses are few and far between in our region, primarily because of the low level of activity. Having said this, they are out there. 

Not knowing potential partner/targets

45 per cent of architecture and design businesses that have conducted a merger in the past five years identified finding quality partners to be their biggest challenge (PSMJ 2016 M&A Study). Sifting out the businesses with tarnished brands, poor strategic alignment and ineffective systems, it is evident that people issues are a huge challenge. Not only that, finding a business that shares common aspirations, cultural values and is a fit financially makes it even more difficult.

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45 per cent of architecture and design businesses that have conducted a merger in the past five years identified finding quality partners to be their biggest challenge.
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Having said this, be assured, there are myriad businesses that should merge or be absorbed by more developed businesses – you just need to put in the work to find them.

More on mergers in part two.

Rob Peake is the founder of Management for Design, a company that works exclusively with the architecture, engineering and design industry. Robert has over 30 years of experience and brings expertise in strategic direction, financial and business management, systems, operations and performance. You can read all of Rob’s articles here.


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