By now, most of you have heard that privately-held A/E superfirm RTKL has been acquired by the Dutch engineering outfit ARCADIS.
I believe that RTKL is only the first of many big US-based A/E superfirms that will soon be acquired by non-US interests. I predict that non-US firms will acquire between 8-10 of the largest 25 US-based A/E firms over the next 12-18 months.
If you look at the world financial picture right now, it makes perfect sense. A weak US dollar combined with Wall Street's overvaluing of large publicly traded A/E/C firms create a win-win for buyers and sellers alike.
Until next time,
Frank A. Stasiowski, FAIA
Showing posts with label financial performance. Show all posts
Showing posts with label financial performance. Show all posts
Wednesday, August 15, 2007
Thursday, July 19, 2007
What is Wall Street Smoking?
Check out this article consolidation in the A/E industry:
http://money.cnn.com/news/newsfeeds/articles/newstex/IBD-0001-17973024.htm
This is an excellent example of the great minds of Wall Street not knowing what's going on in the real world.
Wall Street bases the entire market for A/E firms on the ENR 500. In doing so, they are missing 30% of the fees generated in the design market - not to mention many firms. They measure the revenue of the publicly held "biggies", apparently based on their gross revenues (which in many cases includes the build in design-build) to measure market share of what amounts to a reduced total market. Thus the basis for their analysis is pretty well out to lunch.
Until next time,
Bruce Lynch, Publishing Director
http://money.cnn.com/news/newsfeeds/articles/newstex/IBD-0001-17973024.htm
This is an excellent example of the great minds of Wall Street not knowing what's going on in the real world.
Wall Street bases the entire market for A/E firms on the ENR 500. In doing so, they are missing 30% of the fees generated in the design market - not to mention many firms. They measure the revenue of the publicly held "biggies", apparently based on their gross revenues (which in many cases includes the build in design-build) to measure market share of what amounts to a reduced total market. Thus the basis for their analysis is pretty well out to lunch.
Until next time,
Bruce Lynch, Publishing Director
Monday, June 4, 2007
Get your financial house in order
The 2007 PSMJ A/E Financial Performance Survey came back from the printer last week and I spent part of the weekend reviewing Dan Daniels' findings.
All in all, things are looking good for the A/E industry - growth, revenue, and profits are all up over last year - people are busier and utilization (chargeability) is higher - so it seems that people are working more efficiently.
Having said that, we're still shooting ourselves in our feet on basic business practices that we ought to have figured out a little better by now. To wit:
The current ratio -current assets divided by current liabilities - improved a little this year as some firms used profits to strengthen their balance sheets , but at 1.75 it is still woefully behind most other industries.
Accounts receivable and work-in-process measurements continue to reflect poor billing and collection techniques (67 and 22 days, respectively). Why are A/E firms so weak on converting work into cash? Do you think your auto mechanic would wait 22 days to bill you? Better yet, would she or he wait 67 days to to get paid?
And then there is the direct labor multiplier...granted, this year's median target multiplier has finally budged to 3.10 from 3.0 where it seemed to be stuck forever. If A/E firms are ever going to break the "profit-loss-profit-loss" cycle they need to start charging more for their services. Is there a better time to do this than now - when demand is high? If we are ever going to sustain profitability levels that are more independent of the business cycle, we've got to start charging more for our services.
Can't be bothered with the "accounting details"? Fine, but go find someone who can - they'll more than pay for themselves in improved financial performance for your firm.
If you are curious about the A/E Financial Performance Survey, download a free CEO Snapshot at http://www.psmj.com/publishing/survey/.
Have a great week,
Frank
All in all, things are looking good for the A/E industry - growth, revenue, and profits are all up over last year - people are busier and utilization (chargeability) is higher - so it seems that people are working more efficiently.
Having said that, we're still shooting ourselves in our feet on basic business practices that we ought to have figured out a little better by now. To wit:
The current ratio -current assets divided by current liabilities - improved a little this year as some firms used profits to strengthen their balance sheets , but at 1.75 it is still woefully behind most other industries.
Accounts receivable and work-in-process measurements continue to reflect poor billing and collection techniques (67 and 22 days, respectively). Why are A/E firms so weak on converting work into cash? Do you think your auto mechanic would wait 22 days to bill you? Better yet, would she or he wait 67 days to to get paid?
And then there is the direct labor multiplier...granted, this year's median target multiplier has finally budged to 3.10 from 3.0 where it seemed to be stuck forever. If A/E firms are ever going to break the "profit-loss-profit-loss" cycle they need to start charging more for their services. Is there a better time to do this than now - when demand is high? If we are ever going to sustain profitability levels that are more independent of the business cycle, we've got to start charging more for our services.
Can't be bothered with the "accounting details"? Fine, but go find someone who can - they'll more than pay for themselves in improved financial performance for your firm.
If you are curious about the A/E Financial Performance Survey, download a free CEO Snapshot at http://www.psmj.com/publishing/survey/.
Have a great week,
Frank
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