Mergers and Acquisitions of Architectural and Engineering Firms

The pace of mergers and acquisitions (M&A) in the Architectural and Engineering (A/E) industry is at an all-time high, driven by firms seeking new opportunities for growth. From 2023 to 2024, acquisition activity rose significantly, and the momentum has continued into 2025. A tight labor market has led larger firms to pursue acquisitions as a staffing strategy, while private equity investment in the industry continues to escalate. 

Why Firms Sell Through M&A Transactions 

Many A/E firm owners initially seek to transition ownership internally to key employees to maintain control, ongoing salary and benefits and the continuation of the firm. However, internal transition may not provide the highest value and may not even be possible if key employees lack interest, or the firm cannot financially support the cost to purchase ownership in the desired timeframe. In such cases, an M&A transaction becomes a compelling alternative. 

Valuation Method for M&A Transactions 

Unlike internal transitions, which may use various valuation methods, M&A deals typically value A/E firms using a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization). The multiple depends on factors such as the size of the selling firm and earnings consistency. Smaller firms, which are more dependent on fewer employees and key clients, often trade at three to five times EBITDA. Larger firms with more substantial growth potential may trade at multiples of six, seven or even eight times EBITDA. 

Structuring the Sale 

Structuring the deal to benefit both parties is crucial. Transactions may be structured as stock or asset sales, with asset sales often offering better tax benefits to the buyer. Payments can include cash or stock at closing, while future payments under term note agreements are also common. Deal terms should also address which assets and liabilities transfer, working capital adjustments at closing and potential earnout provisions. For smaller firms, negotiating future compensation and benefits for the seller can be a key part of the deal. Careful structuring helps avoid surprises and supports a smoother closing. 

Conclusion 

Before pursuing an M&A transaction, A/E firms must determine their goals and properly prepare the business for sale. Partnering with the right advisors is essential to navigating negotiations and achieving a successful outcome.