Consolidation is the name of the game in the architecture and design industry these days. Firms are combining to expand into more practice areas and beef up their menu of services to appeal to a broader base of clientele.
On their part, clients are looking for a “one stop shop” of design and build to simplify and speed up project delivery, pushing firms toward a more integrated business model. If you’re contemplating what should be your next business move, now is a good time to consider an acquisition.
By and large, acquisitions are rare in the interior design side of the industry. Designers are more likely to form partnerships or merge firms to expand their practices than acquire another business.
Acquisitions can be lengthy and costly, not to mention disruptive for staff in both entities. On the flip side, a well-planned acquisition can give a firm a big growth boost by providing access to new markets, increasing expertise and technical skills, and/or expanding into new types of business.
In the coming year, the economy is expected to slow, and demand for design services likely will soften as a result. That may not sound like a great scenario under which to expand your business, but down times often are very good times to make an acquisition.
More firms may be more open to an acquisition, especially if they are struggling for some reason or the owner is thinking of retiring. Undertaking the acquisition now will allow you to complete the process and enhance your business so you’ll be better positioned to take advantage when the next up-cycle starts. Plus, interest and tax rates are low at present, making funds more accessible and affordable than they may be later.
If you’re thinking of adding another practice area to your firm, to tap into a niche market that you detect is currently underserved, to compete for bigger or better projects, or extend your reach into more markets, an acquisition may get you there more quickly. Another option would be to diversify your business by acquiring one in a related area, such as wholesale or retail, consulting or a technical specialty. The synergy you create could be of substantial benefit to both businesses.
A variety of factors can make a business an attractive acquisition. It may own real estate or hold a favorable lease that can be assumed. It may have inventory, cash or billings owed, physical assets, brand equity, or desirable clients or existing or committed projects that would be a valuable addition to your firm. There may be staff with experience, talent and expertise you need or want — provided they choose to remain with the company.
When contemplating an acquisition, you need to consider a number of factors. Is the company you’re thinking of acquiring sound financially and operationally? Would the cost of the acquisition exceed the benefit it would bring to your firm? Would you want to keep the management of the new company or would you need to replace it? Are your firm and the new company culturally compatible? Are you prepared to devote the time and resources to acquiring and transitioning the new company into your firm?
You need to take the time to perform a thorough due diligence, with the aid of your attorney and accountant, to discover the answer to these and other questions.
Maybe you’re reading this and wondering if you should be looking for a firm that would be interested in acquiring your firm. The process is very similar. Depending on the time frame you have in mind, you may want to explore some other options as well, such as searching for a partner who is interested in acquiring full interest in the firm gradually or phasing out your practice and then selling the assets to another firm.
Normally, we read about large corporations acquiring small or startup businesses. In part, that’s because they have the capital and a greater tolerance of risk. Yet, mergers or acquisitions between small or midsized businesses can be successful if done for the right reasons and properly. If you’re looking to take your firm to the next level, an acquisition may just be the way to get you there.