Engineering Inc. - July/August 2016 - (Page 46)

Mergers and Acquisitions BY N E I L C H U R M A N Planning to sell your firm? Plan to stick around. A s our industry's babyboomer owners and principals continue to make their way toward retirement, we expect to see substantial merger and acquisition ("M&A") activity in the engineering industry in the coming years. A number of factors are creating an environment ripe for industry deal-making, such as firm owners' desire to retire and capture the value of the equity they've built into their firm. Ultimately, internal ownership transition has proven difficult for many firms. In many cases, employees lack the desire 46 ENGINEERING INC. or the capital (often both) to facilitate an internal transition. At the same time, buyer demand remains strong as industry firms seek to expand. With the possibility of a merger or acquisition on the horizon, firm owners should consider their individual goals and time frames with respect to retirement. The owners and key principals are expected to remain with the acquiring firm in nearly every industry deal. As a professional service industry, the greatest assets of engineering firms are their people-and the knowledge JULY / AUGUST 2016 and relationships they have cultivated. In a merger or acquisition, this is what the buyer is paying for. To ensure that a deal is a good investment, buyers typically want to find ways to keep both shareholders and employees fully engaged in the new firm and actively driving growth. Oftentimes they will use a combination of "sticks" and "carrots" as part of the transaction purchase agreements and employment agreements for individual employees. Sellers should expect they will be subject to noncompete and nonsolicitation clauses, which are designed to prevent sellers from leaving a firm and then competing with the acquirer, inducing employees to leave or soliciting business from former clients. These are the most common sticks, or deterrents, that sellers will see; and, in some cases, they may have to forfeit some or the entire purchase price if they violate any provisions. Moreover, sellers may be required to work for the acquiring firm (often for three years) to receive the full value of the transaction, and a portion of the purchase price is often deferred at the time of closing for this reason. On the other hand, a buyer will dangle carrots to keep employees around. They may include a "stay" bonus for employees who remain with the acquiring firm (often for three years or more). They also may include stock awards, performance incentives, promotions or other methods designed to keep the buyer and seller "rowing in the same direction" after a deal is closed. Depending on the deal negotiated, these may be paid by the buyer, the seller or some combination of the two. Before any deal can be

Table of Contents for the Digital Edition of Engineering Inc. - July/August 2016

Engineering Inc. - July/August 2016
Contents
From ACEC to You
Market Watch
Legislative Action
Engineering and Cyberdefense
Passing the Baton
Look Beyond the Premium
Turning Up the Power
Secure Defense
Lighting a Spark
Navigating a Challenging Terrain
2016 Fall Conference Preview
Guest Column
Mergers and Acquisitions
Guest Column
Members in the News
Business Insights

Engineering Inc. - July/August 2016