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Who will you work for this time next year?

by Mel Starrs on January 13, 2010

in Industry gossip

There were a lot of mergers and acquisitions in the last decade. Last year alone we saw DEGW merge with Davis Langdon, Parsons Brinckerhoff acquired by Balfour Beatty and Fulcrum merge with Mott MacDonalds. Earlier in the decade Whitby Bird, Hilson Moran and RYB:Konsult all, in different ways changed company ownership, mostly in order to reward their founders.

Building services consultancy is not the place to find get rich quick entrepreneurs. If it was, founders would be targeting IPO, and companies would be floating on the stock market. This doesn’t happen because consultancy is a fairly mature market and the average profitability of companies in the sector is low – somewhere between 5-10%. Typically, founders build up their companies because they love what they do, not because they want to become a millionaire. But the day (usually) comes when they want to retire. There is nothing wrong in founders wanting to exit a business and wanting to be rewarded for the work they have done in setting it up. But in the current economic climate, what options are available to them? And what of the staff who are left behind?

The tried and tested option used to be the partnership. It’s a common model in both architecture and consultancy. But I think partnerships are increasingly a less attractive option as employees increasingly cannot afford to buy into the company (effectively buying out the top layer of partners to finance their retirement). There are plenty still around – for example Gifford has 51 working partners, and as a company is 59 years old. The expansion in number of partners took place fairly fast over the past 2 years, and in theory defends them against predators.

But what if your staff cannot afford to buy out the top layer? What are your options then?

Merging with a larger organisation (who are interested in gaining the staff and probably your reputation) seems to have been the favoured route for consultancies in the noughties. Whilst good for the exiting founders (and despite protestations that the merger is in everyone’s interests, blah, blah, blah – they do tend to exit the merged company within 3 years), is it good for the staff?

Scott Berkun has a great post on why big companies can suck:

Status quo / Follower mentality – The bigger a company gets, the more it’s main attractive power for new employees is job security, rather than opportunity to grow, learn or take risks. The Innovator’s dilemma is real, and leaders who have big success are often the last to recognize when it’s time to move on. For anyone interested in progress, risk taking, change or growth potential, a large company is incredibly frustrating, as the dominant psychology is one of play it safe and political correctness. A running joke at Microsoft used to be that the best way to get a product idea to ship at Microsoft was to have a competitor do it first.

Some figures suggest M&A successes are as low as a third. Whilst this is US data, I suspect a similar picture is found in the UK. So not only do the staff gets disillusioned and leave, but the acquirer loses the key thing he bought – in a knowledge industry – your people are your assets.

So what will the next decade bring? There will undoubtedly be more acquisitions. Some disillusioned employees will leave and set up their own practices. But company structures may have to change to reward both founders and employees. Perhaps given the very low profit margins in the industry we would be better to look at alternative forms of legal enterprise (community interest companies)?

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  • ArchitectJane

    After my experiences of working in a huge international architectural practice, which grew rapidly through mergers and acquisitions, I would be very reluctant to work in one again. It’s so much more rewarding to work in a smaller practice, and even more so to work for yourself.

  • ArchitectJane

    After my experiences of working in a huge international architectural practice, which grew rapidly through mergers and acquisitions, I would be very reluctant to work in one again. It’s so much more rewarding to work in a smaller practice, and even more so to work for yourself.

  • http://www.nmanagement.co.uk Heather Northey

    Having been in discussion with one acquisitive consultant a couple of years ago I was concerned that their strategy in pursuit of scale was at the expense of fit or with little regard to the levels of debt being built up. I did wonder about how successfully these organisations would integrate and if the senior management also had the where with all to manage so much change so quickly.

    My mind wandered back to the 1980’s partnership practices where expansion was fuelled by increasing the number of partners very rapidly. The partnerships, which as you say are not particularly high margin businesses, could not sustain the increased strain on resources when work dropped and many failed.

    The comparison between these businesses is similar; most have ended up top heavy with management layers and the value gained through shared operations has not been implemented quickly enough to take the cost out especially when culture is different.

    Again we shouldn’t forget 90% of consultants work in practices with <20 people. The mid sized companies have consolidated, and will continue to do so, but the rest have a nicer life.

  • http://www.nmanagement.co.uk Heather Northey

    Having been in discussion with one acquisitive consultant a couple of years ago I was concerned that their strategy in pursuit of scale was at the expense of fit or with little regard to the levels of debt being built up. I did wonder about how successfully these organisations would integrate and if the senior management also had the where with all to manage so much change so quickly.

    My mind wandered back to the 1980’s partnership practices where expansion was fuelled by increasing the number of partners very rapidly. The partnerships, which as you say are not particularly high margin businesses, could not sustain the increased strain on resources when work dropped and many failed.

    The comparison between these businesses is similar; most have ended up top heavy with management layers and the value gained through shared operations has not been implemented quickly enough to take the cost out especially when culture is different.

    Again we shouldn’t forget 90% of consultants work in practices with <20 people. The mid sized companies have consolidated, and will continue to do so, but the rest have a nicer life.

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