ABI September 2016 Firm Billings Report: Is Your Firm Prepared When the Real Estate Boom Fades?
Every few months we check in on the AIA’s Architectural Billing Index. While serving as a good barometer of the health in the A\E industry, the ABI is a lagging indicator of overall construction and real estate economic status. According to the ABI for September 2016, firms reported that billings were slightly down yet again this year.
Most firms reported an increase in signed contracts for new work, which appears to portend that the long running post-recession expansion appears not to have totally run its course. Bolstering this outlook, the New York Building Congress recently reported over $1.4 billion in construction starts for NYC in the first half of 2016, which is still greater than the amounts realized in the first six months of other recent years (except 2015, which was skewed higher by two mega-projects). This strength in the NYC area is offsetting weaker performance in the rest of the northeast. Firms in the South, the Midwest and West continue to show strength and moderate growth in billings and new contracts according to the ABI. Architectural employment has continued to edge up, standing 3% higher than a year ago.
The ABI report also asked firms whether they had considered or completed a merger or acquisition in the past year. One-fifth reported they had. Despite some election year uncertainty, the economy remains steady with an overall positive forecast. Yet, as I have traveled around the nation speaking with A\E\C principals, I have observed a clear concern that many anticipate some slowdown to be experienced over the next 18 months.
As a result of these concerns, many firm principals have spoken of the need to explore affiliations — whether informal or via a merger or acquisition to serve as a buffer for their firms in advance of an anticipated slowdown in the real estate market. Many of these principals also want to explore opportunities to broaden their geographic markets, strengthen areas of expertise or provide more opportunities to retain young millennials on their staffs.
Is a merger in your firm’s future? As you already know, a good match is as much about cultural compatibility as it is business opportunities and financial sense. Over my decades of experience, not all firms are prepared to embark on a merger or acquisition strategy. Some principals are not prepared to be part of a larger organizational structure; others have not fully understood that interested parties need to undertake serious preparation to become attractive entities to others interested in such affiliations.
Nor should firm principals overlook the importance of any intellectual property and institutional knowledge their firms have as a valuable part of the assets for them to promote to others.
Do you have a system in place that recognizes these assets and protects them? Does your prospective partner have similar protections in place?
Like it or not, mergers typically identify redundant resources, i.e. staff. Brain drain is a lesson learned the hard way after it’s too late to capture years of valuable project knowledge and experience that has walked out the door. Losing hard-earned institutional knowledge prevents your firm from optimizing efficiency and profitability, and handicaps you from outperforming your competition.
Software knowledge platforms such as Arazoo cost-effectively provide design professionals with an easy to use method of identifying, sourcing and putting out to bid the many products required for today’s modern projects. Readily transferable information is now in the forefront of the technology being adopted by an increasing number of firms. Promoting your firm’s use of such advanced technologies will become an important part of most firm’s efforts to add efficiency and profitability in the years to come. And, most importantly, when that next downturn in the economy comes to the design and construction community, your firm will be able to tout how much more efficient its operations are making you a more attractive candidate for any prospective merger or acquisition that may come along.
