Practicing ArchitecturePracticing Architecture
The AIA Trust’s Guide to Architecture Firm Ownership Transitions
Selling, merging, or closing your practice? The AIA Trust can help
In recent years, with the slowly improving economy, there has been an increasing pace of mergers and acquisitions among architecture firms. Privately owned architecture firms in today's consolidating, competitive environment face numerous hurdles when considering traditional internal ownership transitions and leadership succession programs. To help AIA members through these types of transitions, the AIA Trust has commissioned George Christodoulo, head of a national law practice serving design professionals as both buyers and sellers in mergers and acquisitions, to prepare paper he will also be presenting at a seminar during the upcoming AIA Convention 2014 in Chicago: “Selling, Merging or Closing Your Practice? An Overview of Factors to Consider When Choosing a Course of Action” will take place on Thursday, June 26, from 4 p.m. to 5:30 p.m.
The performance of architecture firms since the 2008 recession has inhibited the ability of younger owners to finance their purchase of shares, delaying typical paths for leadership succession. The market turnaround since 2012 will increase the likelihood that internal transitions will succeed, since an infusion of profits is necessary to finance the purchase of shares from older leaders, while allowing adequate capital to operate and grow. And, of course, it is vital that the next generation of architects have the inclination and entrepreneurial instincts to lead firms.
And if a typical internal transition isn’t in the cards, there are many good reasons for an external purchase of an architecture firm, including a higher valuation of the firm by outside purchasers and clients who want to minimize the number of joint ventures, firms, and sub-consultants on projects. Often a more complex process, there are numerous courses of action that may be considered; a description of these alternatives, along with charts clarifying the parties involved, are included in Christodoulo’s paper.
Whether changing the ownership of a firm internally, dealing with an external buyer, or merging architecture firms, Christodoulo addresses all the practice and business issues that will ultimately determine success or failure. These include whether the firms have compatible cultures, what the firm will be named, professional liability insurance, personal property of seller shareholders, tax ramifications, the retention and future employment of the seller's employees, and the communications plan and branding strategy as it relates to the public and the firm’s clients.
In addition, Christodoulo outlines the steps involved and factors to consider should the decision be made to close the firm. A firm closure isn’t as simple as it may sound. Beyond the obvious downside of ending a business and terminating jobs, disadvantages can include lower net proceeds to the owners, and the resolution of outstanding debt and current property leases.
The final decision to sell, merge, or close a firm affects not only the financial return to the owners but also the employment of staff and the firm’s culture. There is no one right answer to how each firm’s leadership should best evolve over time, only options to be weighed with respect to the circumstances and priorities of the firm’s owners. Change is inevitable, but being prepared for change isn’t. With a little knowledge about what lies ahead, firm principals can chart the best path to their future.
“Selling, Merging or Closing Your Practice? An Overview of Factors to Consider When Choosing a Course of Action”, Thurs., June 26, 4 p.m. to 5:30 p.m.