Engineering Inc. - Spring 2020 - 8

ACECRESEARCHINSTITUTE

Research Institute/FMI Ownership
Transition Study Finds Gap
Between Knowledge and Intent

E

ngineering firm owners think they are better prepared for ownership transition and management
succession (OTMS) than they actually are, according to a survey by the ACEC Research Institute
and FMI Capital Advisors.
"With the accelerating retirement of baby
boomers and engineering firms' vital need to
attract younger engineers into management and
ownership ranks, this study serves as both a wake-up call and a
guide for firm owners," says Daphne Bryant, executive director,
ACEC Research Institute.
In the survey of 186
owners of firms, with
annual revenues ranging
from less than $2 million
to more than $1 billion,
fewer than two-thirds of
respondents (63 percent)
have an ownership plan
in place, and barely half
(51 percent) have a clearly
defined set of ownership
criteria.
While it is common
under an ownership transition (OT) plan for firms of all sizes to "sell back to employees,"
only 26 percent of firms have ownership opportunities in place
for executive leadership, and just 12 percent extend ownership
opportunities to all employees.
Almost a third of firm owners do not clearly understand the
valuation and economic trade-offs among the various ownership
transfer options for their firm.
"Without a clear understanding of the valuation, tax, and
other financial implications of all available OT options, owners
are less likely to optimize the benefits for all stakeholders," says
John Carrato, chair, ACEC Research Institute, and president
and CEO, of Benesch, Inc., in Chicago.

84%

of respondents believe
succession planning
is important

8

ENGINEERING INC.

SPRING 2020

Two other key takeaways from the survey are that firm size
has a significant impact on OTMS preparedness and that management succession planning appears to be a blind spot for
many.
Among firms with 200 or more employees, 89 percent of
respondents have formal ownership transfer plans, but among
firms with fewer than 50 employees, just half (51 percent) have
a formal plan. And among those firms that do not have a formal plan, 41 percent of respondents-mostly smaller firms-
said they have not explored any ownership transfer options.
"While smaller A/E
firms might not be as
complex as their larger
counterparts, they must
also address ownership
transfer and identify new
leaders," says Greg Powell,
managing director, FMI
Capital Advisors. "It
appears, however, that
smaller A/E firms have
less clarity around what
they want to do with the
business or how they want
to grow it."
Results also show that 84 percent of respondents believe management succession planning is important, but only 58 percent
have formal succession plans in place for key roles in the company. Additionally, just over half (53 percent) say they are prepared to transition the president/CEO role, but only 13 percent
of firms have formal succession plans for key midlevel employees.
"While companies predictably prioritize management succession planning for the top of the organizational chart," says
Powell, "the best-run firms also focus on developing a deep
bench so they can successfully backfill at all management levels
as employees move up in the ranks."
The ongoing retirement of baby boomers adds to the
pressure. Thirty percent of the firms reported that they will
need successors for key roles within three years or less, and 33
percent said they will need successors within four to six years.
"As the baby boomers continue to transition out of leadership
and management roles in the A/E industry," says Powell, "the
need for well-planned ownership transition and succession
planning is greater than it has ever been."
To view the executive summary of the survey, go to the
research page on the ACEC Research Institute website at
www.acecresearchinstitute.org. ■
http://www.acecresearchinstitute.org
Engineering Inc. - Spring 2020

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