Mergers and acquisitions are currently on the upswing in the A/E/C industry, and that activity shows no signs of slowing down any time soon. But just because it’s happening more doesn’t mean it’s happening successfully.
Depending on whose statistics you follow, the failure rate of mergers and acquisitions as a whole ranges from 70% to 90%, and the A/E/C industry is no different. There is no magic formula for success, but there are factors that will enhance your chances. In this issue of The Friedman File, we talk to two firm leaders about their successful merger—and the lessons they learned from doing it right (and from an acquisition that didn’t fare as well).
Know your potential match
While some firms go through extensive searches to find the right partner, Willy Stewart, P.E., and George Stanziale, Jr., ASLA, CLARB, of 200-person engineering, planning and landscape architecture firm Stewart (Raleigh, NC) have known each other personally and professionally since the late 1980s. Their kids played soccer together, and due to their firms’ similar clientele, had worked together on projects throughout North Carolina’s Triangle area for years.
“We teamed together intentionally for projects and our clients also teamed us together,” says Stanziale, whose landscape architecture firm HadenStanziale was 50 people at its largest incarnation. Stewart Engineering was 130 people strong at its peak. Both firms were growing their reputations when the recession hit. While they weathered that storm by reducing size and focusing on a diverse mix of clients, the experience spurred talks about what they could achieve if they joined forces. Stanziale felt business needed to be done differently post-recession and the diversity of a multidisciplinary approach made sense.
As well as working in similar markets, the two firms had complementary staff. HadenStanziale was focused in high-level landscape architecture and urban design with engineering support and Stewart was focused on civil and structural engineering with landscape design support. The synergies made it clear that they could expand their reach and capacity as a combined firm.
Does 1+1 = 3?
Today, assessing compatibility, creating client value and building new opportunities is more important in mergers than ever before. In crafting a successful marriage, these factors can even outweigh financial considerations. For Stewart, the real value came from redefining what a combined firm could look like and building a culture to support that vision.
“So many mergers just aggregate more people to the same services,” says Stewart. “They focus on streamlining overheads to reduce cost. We knew that by coming together, we would be offering something different to our market.”
Instead of an engineering-led firm with landscape architects on board, where separate groups talk when they need to, they envisioned a firm where both professions were in equal leadership roles and where design, not discipline, was the focus.
“Design thinking is design thinking, no matter the discipline,” says Stanziale. “We wanted to create a group where engineers and landscape architects sat together, led projects together and cross-collaborated in every way. We wanted to deliver creative solutions that are both aesthetically pleasing and practically engineered— high-level design and high-level engineering.”
That group, now called Land Planning & Design, is the firm’s largest and has proved to be a differentiator that attracts both clients and new talent.
In many cases, civil firms with landscape architecture positions are not focused on landscape-architecture and design thinking, says Stanziale. “High-level designers are less interested in working in that kind of firm, but we have created a culture of design thinking across all disciplines, and as a result, we’re attracting designers who are at the top of their class.”
Setting the foundation
With a vision of the possibilities ahead, Stewart and Stanziale pulled together their second-level managers and tasked them with identifying best practices from each firm in areas ranging from project management and technology to marketing and physical workspaces and even the name itself. The intense three-month study process, with weekly presentations, was completed before any paperwork, beyond a memorandum of understanding, was signed.
Two managers in Human Resources also spearheaded the launch of Stewart University, an internal online training program to help employees better understand each of the firm’s disciplines and how they are integrated. Monthly staff meetings reinforce this integration by identifying which disciplines are working together on current projects. A new brand and the tagline Stronger by Design was developed to communicate the vision for the new collaborative, design-focused organization. “We completely re-branded the firm in every way” says Stanziale.
So much advance work was done—and with input from personnel in both firms—that when the merger and rebranding were complete in 2012, it nearly felt seamless, say both leaders.
Successes and challenges
In its first five years as a combined organization, Stewart has seen remarkable growth. They’ve also had major wins, which they credit to their collaborative, design-focused culture and the credibility that comes with being a larger firm with a stronger portfolio. Staff count has grown from 105 employees to now over 200. Share value has doubled. There are new service groups, such as Global Sports & Events Planning, and the firm recently beat a larger global firm to land a high-profile contract to master plan the overlay facilities for national PGA golf tournaments.
Yet no merger is without its challenges. There were organizational shifts in the Charlotte office, and it took time to carve out the right roles for HadenStanziale’s senior leaders. Currently, Stewart is CEO and Stanziale serves as President and Director of Design.
“We needed to look at leadership of the smaller firm coming in and where they would fit into the larger leadership,” says Stanziale. “We did not do as well as we could have in understanding how we could take advantage of our capabilities.”
Shortly after the merger, an unexpected professional liability situation arose, presenting a challenge to the newly formed leadership team. Today, with that issue mostly behind them, the team has become tight-knit, says Stewart. They prioritize trust, collaboration and continual professional growth, including participating in an intensive 12-month leadership program together.
But the biggest challenge – and the greatest lessons – came from the newly merged firm’s attempt to geographically expand through a small acquisition in 2015. While the business drivers for such a move may have been clear— expanding into a new region, adding capacity and opening up a new client market— there were other critical factors to weigh, says Stewart. In this case, the smaller firm was not culturally prepared for the systems, regulations and processes that come with a larger entity. After an unsuccessful trial period, Stewart sold the company back.
“Mergers are emotional and they are complex,” says Stewart. “There has to be a clear understanding and embracing at the top of both firms. You both have to know why you are doing it. It takes total commitment from the top. If you get those components on the table before anything is signed, you have a better chance of succeeding. This one was a cultural misfit.”
What’s next for Stewart? Geographic expansion makes sense for a firm that is already a regional player, says Stanziale. But their successes—and misses—have shown that intentional, organic growth is the formula that’s made them successful thus far, and what will continue to drive their firm and its culture into the future.
“We’re in small markets, but they are high-growth markets, so we are looking at how we can take what we offer out to the marketplace,” says Stewart. “But we let the leaders of our groups manage and grow very entrepreneurially. It is never going to be growth for growth’s sake.”
What lessons have you learned from successful (and not-so-successful) M&As? I’d love to hear your stories. Get in touch with me at rich@friedmanpartners.com or (508) 276-1101.
