Issue 843: December 21, 2009 A ZweigWhite Publication

2010— The year ahead Special Issue:

2010 Industry Outlook
> Mark Zweig makes 11 predictions for the new year— it’s going to be a doozy!

> Editorial It’s that time of 2. We’ll work through the “shovel-ready”
Mark
year again. Time
to dig out my
government projects and get back into a
design mode. This will, of course, do
> In this issue:
Zweig
crystal ball (I much more for A/E/P firms. ■ Mark Zweig makes 11 predictions for
More firms will keep it in my the new year— it’s going to be a doozy!
3. More firms will be shut down by Page 1
be shut down by sock drawer, in a banks that won’t tolerate endless viola- ■ Economy tops leaders’ concerns
banks that won’t pile of rarely tions of line-of-credit covenants. This for 2010. Page 1
tolerate endless worn argyles for will be a marked change from banking ■ Business trends to watch in 2010.
safe keeping) so I
violations of practices of the past, when it rarely Page 2
can try to get a
line-of-credit happened. ■ A/E Business News: Cubellis closes
glimpse of our shop, and Architects cast doubt
covenants. future ahead. By 4. The devaluation of commercial office on sustainability. Page 3
all indications, this year is going to be space is going to hurt banking relation- ■ Economists see brighter days for AEC
a doozy! ships for those firms that own their own industry in 2010. Page 4
buildings and are highly leveraged. ■ ’My hot market’ for 2010. Page 5
Here is some of what I see for 2010:
When their three- or five-year notes
■ Resources: 2010 Industry Outlook, and
1. Unemployment is still holding back come due and they are upside down on Next Houses. Page 5
the economy. Double-digit unemploy- their loans, this, too, will contribute to
■ Ownership transition and leadership
ment will ease back into the 8% range by their banking woes on their credit lines. succession— the planning challenge
summer. Real unemployment is, of for the future. Page 6
5. Housing will show continuing signs of
course, worse, because so many people ■ Z View: Looking through the lens
recovery ONCE the lending mess is
are working but making less, due to of leadership. Page 7
solved. Low appraisals and pointless hoops
hours restrictions or pay cuts. The unem-
to jump through are killing the mortgage
ployment rate will remain much higher
lending field and knocking the wind out of To our subscribers:
for architects, interior designers, and
the recovery that wants badly to happen. The Zweig Letter will not be published
landscape architects than other A/E/P
on December 28. Happy Holidays!
professionals. See “Editorial” on page 2

Economy tops leaders’ concerns for 2010 > Matters of Concern

> Firms worry more about finding good
business news, less about finding
qualified staff.
What a difference two years of recession
makes: Today, AEC firm leaders rate the
performance of the U.S. economy as the
biggest challenge they face in the coming
year. In late 2007, overall economic per-
formance wasn’t even among the top 10
challenges they listed.
By contrast, two years ago top executives
said their biggest challenge was finding
qualified staff. This year, firm leaders list a
lack of talent as the ninth most important
challenge they will face in 2010, according
to ZweigWhite’s 2010 AEC Industry
Outlook.
> Outlook “The condition of
the economy plays an
important role in how our business per-
forms, and the economy is still weak,
specifically in the private sector,” says
Steven Smith, president and managing
director of WSP Sells in New York, a sub-
See “Economy” on page 8
Top five challenges in 2010
(ranked in a scale of 1 to 5)
Performance of the U.S. economy . . .4.46
Increasing competition . . . . . . . . . . . .3.69
Cost of health insurance . . . . . . . . . . .3.63
Declining use of Qualifications-based
selection for A/E firms . . . . . . . . . . . . .3.55
Potential new federal
health insurance program . . . . . . . . . .3.27
Source: AEC Industry Outlook: Strategy
and Insight for Design & Construction
Firms

© Copyright 2009, ZweigWhite. All rights reserved.

The Zweig Letter
ZWEIGWHITE
 2 Issue 843: December 21, 2009
Editorial
From page 1
6. Some sort of national health care
reform will pass early in the year and clear
the way for health care institutions to
start spending real money on facilities
once again.
7. The college and university market will
once again be one of the strongest sectors
for our industry. With recovering endow-
ment portfolios, combined with increasing
enrollments (unemployed or underem-
ployed people tend to go back to or stay in
school), it has to bode well.
8. The Green Movement, led by firms
such as Wal-Mart, will create entirely new
service lines for A/E/P and environment
firms that want to pursue it. 2010 will be
the year of “green.”
9. Other strong markets will be airports
and aviation facilities, roads and bridges,
nuclear power (it’s back!), and many fed-
eral government sectors. Weak markets
will be office and retail, K-12 (who can
pass a tax increase?), and almost anything
industrial other than warehouse and
distribution.
10. Popular management and wealth-
building book authors will issue sequels
such as Who Moved my Cheese, Again?,
Good to Great to Mediocre, and The
Millionaire Who Used to Live Next Door,
in attempts to revitalize their own careers.
11. And, finally, Tiger Woods will prove,
once again, what an incredible athlete he
really is, as mistress #’s 17, 18, and 19
(identical triplets) present themselves and
tell their story to the world. The seeming-
ly endless stream of Tiger love partners will
keep Oprah from going through with her
planned retirement in 2011.
So there you have it. My crystal ball is
overheating and getting a little cloudy...
so I have to put it back into the sock
drawer until this time next year. Good
luck, All— you will need it in 2010. ■
MARK ZWEIG is the founder of
ZweigWhite. Contact him with questions
or comments at mzweig@zweigwhite.com.
The Zweig Letter
Business trends to watch in 2010
> Watch out for these six major trends
impacting the AEC industry this year.
ZweigWhite recently released its annual
AEC Industry Outlook: Strategy and Insight
for Design & Construction Firms report,
and while the outlook isn’t as rosy as some
previous years’, it’s not
> Trends the gloom and doom of a
year ago. Firm leaders are
somewhat more optimistic overall about
their prospects in 2010 than they were
heading into 2009, but it’s not going to be
easy for many reasons, not least of which
is continuing uncertainty in the U.S.
economy.
This year, we are tracking six major trends
that will affect the AEC industry over the
next 12 months:
■ Economic uncertainty
■ The American Recovery &
Reinvestment Act of 2009 and other
government intervention
■ Unemployment and health care
■ Mixed merger & acquisition activity
■ Globalization of the AEC industry
■ Green building
■ Economic uncertainty. The past 15
months have been very difficult for the
U.S. economy, as a result of the “Great
Recession” that began in December 2007.
While many economists are now declaring
the recession officially over and many of
the most-watched economic indicators are
improving, 2010 may still be a difficult
year as the recovery progresses weakly,
especially in light of trend # 2, a still very
high unemployment rate.
■ Unemployment and health care. On
Dec. 4, the Bureau of Labor Statistics
released new unemployment figures that
showed a slight improvement to America’s
soaring unemployment problem, with the
national rate dropping to 10%. However,
that figure is still one of the highest the
U.S. has experienced since the recession
began. And the AEC industry has not
been immune. In response to the drop-off
in project pipelines, some firms have been
forced to lay off staff members and power-
down their offices to cut costs while they
wait for the situation to improve. At the
same time, the cost of providing benefits
to employees continues to climb. Both of
these problems are being addressed on a
national level, and look for the outcomes
of action taken by Congress and the
Obama administration to change the face
of business in the wider economy, as well
as within this industry, in 2010.
> What’s Ahead
1%
7%
15%
38%
40%
Expectations of business performance
in 2010
Outstanding . . . . . . . . . . . . . . . . . . . . .1%
Excellent . . . . . . . . . . . . . . . . . . . . . . .15%
Good . . . . . . . . . . . . . . . . . . . . . . . . . .40%
Satisfactory . . . . . . . . . . . . . . . . . . . . .38%
Poor . . . . . . . . . . . . . . . . . . . . . . . . . . . .7%
Source: AEC Industry Outlook: Strategy
and Insight for Design & Construction
Firms
■❄The American Recovery & Reinves-
tment Act of 2009 and other government
intervention. In 2008 and 2009, we saw a
series of unprecedented government mea-
sures aimed at improving the health of the
economy. These bills and initiatives—
most notably the American Recovery and
Reinvestment Act of 2009 (ARRA), the
stimulus bill— provided opportunities for
the AEC industry, but also caused some
headaches. Only about 25% of the bill’s
appropriations have been awarded so far,
so look for this bill to continue to influ-
ence the building and construction sectors
in 2010 and beyond as more of the provi-
sions are enacted. A possible second stim-
ZWEIGWHITE

ulus and other proposed measures in
Washington could pass in 2010, further
changing the course of the economy and
the industry in the coming 12 months.
> Plans for Success
Which of the following growth strategies
will your firm pursue in the next 12
months?
Introducing new services
to existing markets . . . . . . . . . . . . . . .76%
Pursuing more public (federal,
municipal, etc.) work . . . . . . . . . . . . .72%
Teaming (not joint venturing) . . . . . . .67%
Entering new markets . . . . . . . . . . . .59%
Expanding marketing activities . . . . . .57%
Pursuing design/build opportunities . .46%
Geographic expansions . . . . . . . . . . . .46%
Pursuing a merger or acquisition . . . .28%
Entering new international markets . .18%
Joint venturing . . . . . . . . . . . . . . . . . .18%
Pursuing construction
management opportunities . . . . . . . . .17%
Pursuing program management
opportunities . . . . . . . . . . . . . . . . . . . .15%
Increasing hiring and recruitment
activities . . . . . . . . . . . . . . . . . . . . . . .12%
Source: AEC Industry Outlook: Strategy
and Insight for Design & Construction
Firms
■ Mixed merger and acquisition activity.
Over the past several years, strong perfor-
mance and record profits in the AEC
industry provided many firms with the
capital necessary to make acquisitions.
Record industry profits translated into
strong cash positions and rising internal
stock prices, fueling additional purchases.
That all changed late in 2008 as the stock
market tumbled and the economy was
pronounced officially in recession. Firms
are less optimistic about the performance
of the AEC business and the overall econ-
omy heading into 2010, and that hesitan-
cy is having an impact on the M&A mar-
ket. Investors of all shapes and sizes are
nervous, and many have lost significant
amounts of wealth that was tied up in the
stock market. Until they can recoup some
of these losses, firm leaders who were
© Copyright 2009, ZweigWhite. All rights reserved.
ZWEIGWHITE
preparing for retirement through the use
of a merger or acquisition may be holding
on until the markets stabilize before sign-
ing on the dotted line.
■ Globalization of the AEC industry. The
world is shrinking, and the AEC industry
is going global. That trend will continue
in 2010 and the implications for design
and construction firms are significant.
Globalization will provide both opportu-
nities and obstacles to U.S. firms, even for
those firms that do all of their work
domestically. Many American AEC firms
will find new markets opening abroad, at
the same time that they face competition
from foreign firms for projects closer to
home. In 2010, work will increasingly
flow to the most competent, lowest-cost
professional service provider, regardless of
where that person or firm is physically
located.
Firm leaders are somewhat
more optimistic overall about
their prospects in 2010 than
they were heading into 2009.
■ Green building. Green building, or sus-
tainable design, has been one of the
biggest trends affecting nonresidential and
residential construction in the past few
years, and it will continue to do so again in
2010 and beyond. The growth of green
building has been driven by a renewal of
environmental consciousness in the U.S.,
particularly in regard to the importance of
global warming and the need for action on
local and global levels. In addition, volatile
energy costs have made sustainable design
and energy efficiency much more attrac-
tive from an economic perspective.
Corporate greening has also driven the rise
in the sector and will continue to do so,
especially as the Obama administration
makes the creation of “green jobs” a top
priority.
Keep an eye on these trends in 2010 and
beyond for information as to how the
markets may change and what opportuni-
ties and obstacles your firm may face in
the months ahead. ■
Issue 843: December 21, 2009
3
> A/E Business News
CUBELLIS CLOSES SHOP: Number 13
on the 2009 The Zweig Letter Hot Firm List
turned out to be the harbinger of bad luck
for Cubellis, a well-known architecture and
engineering firm in Boston.
After more than two decades in business,
the 175-person firm is in the process
of shutting down, according to an article
in Boston Business Journal.
In an interview with The Zweig Letter last
June, President and CEO Lenord Cubellis
talked about difficulties facing the firm,
including shedding 35% of its staff from
425 in June 2008 to 280 in June 2009.
Just last year, the firm had 18 locations,
including an office in Dubai, according to
another TZL article. Recent office openings
included locations in Baltimore, Dallas, and
suburban Los Angeles, according to the
Boston Business Journal article.
Lenord Cubellis told the newspaper that
Sovereign Bank’s decision to freeze the
firm’s line of credit, leaving it unable to pay
employees, led to the decision to shutter
the operation. Meanwhile, firm employees
are taking over several active projects, and
making arrangements to finish them.
Started in 1986 with five employees in
Boston, Cubellis generated almost $64
million in revenue in 2008, according to its
2009 Hot Firm List submission.
ARCHITECTS CAST DOUBT ON
SUSTAINABILITY: An October poll by
Architect Magazine asking respondents
which statements “most closely describes
your personal views on sustainable design
and the environment,” shows some
surprising results. The survey revealed
the following:
■ 46% of respondents identified with the
statement, “It’s vital that we design and
build sustainably, in order to conserve
scarce resources and prevent further global
warming.”
■ 34% chose the statement, “I’m not sure
that global warming is caused by man, but
energy conservation makes economic sense
if we’ll be less dependent on other
countries’ oil.”
■ 6.7% identified with, “I’m not sure
whether building green in the United States
will help the environment when China and
India are becoming industrialized so rapidly.”
■ 12.8% chose, “Global warming is a myth
perpetuated by the media, and green
building is a fad— it’ll be forgotten in 20
years time.”
The Zweig Letter
 4 Issue 843: December 21, 2009
Economists see brighter days for AEC industry in 2010
> Low mortgage rates, stimulus money could down side,” he says. “We’re seeing some
spur more activity in some sectors.
improvements in the broader economy
Two leading AEC economic analysts and ultimately that’s going to mean good
expect an uptick in work next year, things for the construction industry.” He
although they warn firm leaders not to believes the recession ended somewhere in
expect a return to the industry’s heyday of the June-July timeframe, but will wait for
only a few years ago. official word on that.
Ken Simonson, chief economist for
The good, the bad, and the ugly
Associated General Contractors of Simonson says he expects the pool of cash
America (AGC) (Arlington, VA), is “par- set aside for infrastructure projects in the
tially optimistic” about American Recovery and Reinvestment Act
> Outlook what’s to come in of 2009— about $135 billion of the $787
2010, saying he expects billion total— to be distributed more
to see growth of 20% to 30% in single- feverishly this year and allay some of the
family home building, a boost that would concerns across the AEC industry about
still leave that sector below its 2007 levels, the relatively paltry impact the stimulus
but a significant step up nonetheless. package had in 2009, other than on high-
“We’ve got mortgage way projects.
rates at record lows High-speed rail projects are likely to see
and home prices their first awards late next year, he says,
down, so more people and government agencies are expected to
can qualify for and be better equipped to deal with the flood
afford mortgage pay- of new contracts in 2010 than they were
ments than ever shortly after President Barack Obama
before, even with a
Ken Simonson, signed the bill into law in February. That
Chief Economist, 10% unemployment glut of paperwork caused a backup on get-
Associated General rate,” he says. The ting the money flowing, Simonson says,
Contractors of
first-time homebuyers’
America calling it an unexpected “embarrassment
federal tax credit pro-
of riches” the agencies had never seen and
gram has been extended through April 30 weren’t prepared to handle.
and expanded to give some existing home-
owners a $500 credit as well. The inclusion of the Buy American provi-
sion in the stimulus package slowed many
Kermit Baker, chief water and wastewater projects, as contrac-
economist for the tors noted the much higher prices of mate-
American Institute of rials in the U.S. as opposed to their usual
Architects (AIA)
overseas suppliers. That quandary is being
(Washington, DC), sorted out but shouldn’t slow things down
says improvements in
in 2010, Simonson says.
the broader economy
such as an anticipated State and local projects could be in the
Kermit Baker,
increase in the Gross worst shape, he says, since state and local
Chief Economist,
American Institute or Domestic Product in government budgets are still dropping.
Architects Also likely to struggle in 2010 are devel-
the fourth quarter of
2009 and a boost in oper-funded projects, with occupancy
the amount of economic stimulus money rates lower than in many years at hotels,
expected to be doled out in 2010, are good and vacancy rates in apartments and
starts. multi-family homes continuing to fall.
“Six months into the recovery, there are Higher education and health care projects,
more surprises on the upside than on the Simonson says, could go either way.
The Zweig Letter
“With the revival of the stock market, we
could see an increase in endowments and a
pickup in activity in those sectors,” he
says. Simonson also expects to see a limit-
ed revival in the retail market “if I’m right
about home building,” saying new home-
owners will do increased levels of business
at home-improvement stores and the like
in their areas.
Baker says he sees the institutional sector
as much stronger than the commercial sec-
tor in 2010, saying he hopes designers see
a turnaround by the middle of the year, a
timeline that would mean construction
activity would grow in 2011.
“There’s still a hope the stimulus will do
more to turn things around than it has so
far,” Baker says. “These adjustments are
taking time to sort themselves out.”
“We’re seeing some
improvements in the broader
economy and ultimately that’s
going to mean good things for
the construction industry.”
What else is on the horizon?
Simonson says he expects a checkmark-
shaped recovery, meaning a more gradual
recovery but no second dip anytime soon.
Many economists see reason to call for a
“W-shaped” recovery, meaning a second
dramatic drop in the economy before a
full recovery.
Baker says he expects the economic
turnaround to trigger more consolidation
across the industry as the largest firms in
the arena take advantage of the fear some
small firm owners have about the future,
even as things start to turn around.
“There are a lot of owners who’ll decide
they don’t want to go through this again,”
Baker says. “There’s a lot of evidence that
bigger can be better from the client’s per-
spective, and that could lead to some
opportunities to take advantage, certainly
some lower prices.” ■
ZWEIGWHITE
 Issue 843: December 21, 2009
5
‘My hot market’ for 2010 > Resources
> Firms leaders tell us what will likely lift their of this recession as our backlog has been 2010 INDUSTRY OUTLOOK: Will the
bottom line next year. housing market improve, or will the
reduced, but to date we have not reduced
sluggish recovery continue or worsen? Will
Surveys give us the overall picture, but for overall staff size. Many projects are hold- the spillover effect from the housing crunch
these leaders, a winning market niche ing, awaiting continue to infect additional nonresidential
might be found in unexpected places in > On The Record the economy markets in 2010? Will banks ever get back
to the business of lending money? Many
2010. and the Oba-
analysts are saying that we’ll see marked
Thomas Bates, managing principal, ma health care plan to be solidified, but improvement in all areas in the economy
BLRB Architects (Tacoma, Washington), we anticipate more projects starting up in 2010, but are they right? And how will
after the beginning of the coming year.” improvements be felt in the AEC industry?
a 62-person architecture firm:
Find the answers to all of these questions
“With public percep- “Our only market sector is and many more with ZweigWhite’s 2010
tion slowly embracing AEC Industry Outlook: Strategy and Insight
health care and we do not feel for Design & Construction Firms, where
the idea of genuine
economic recovery,
it will be unseated as the you’ll find vast research and discussion of
these and many other issues. Knowing the
increasing numbers of market sector leader.” answers to these questions can give your
public school districts architecture, engineering, construction,
Kevin Phillips, CEO, FPM Group and or environmental firm an edge on the
are making plans for FPM Remediations (Ronkonkoma, NY), competition.
2010 bond initiatives. a 100-person a full service environmental
Tom Bates, This year’s report is the most detailed
Managing Principal, The reality for public and traditional engineering firm specializ- Industry Outlook ZweigWhite has ever
BLRB Architects schools is that whether ing in environmental engineering, geo- produced, covering more economic trends
times are flush or lean, physical investigations, hydro geology, in the broader economy and expanding on
school facilities must be maintained, mod- information we’ve gathered in the past. This
engineering design and design-build: report is the most up-to-date and
ernized, expanded or created to adequate- comprehensive market outlook report
ly fulfill student needs. BLRB Architects’ “Our hottest market available, written exclusively for design
hottest market for 2010 is the K-12 edu- by far will be the and construction firm leaders.
cation sector. Districts are already seeking Department of For more information or to pre-order
architectural services for pre-bond plan- Defense Military a copy, call 1-800-466-6275 or log on to
ning and promotion, pre-design and edu- Munitions Response www.zweigwhite.com/zw-858.aspx.
cational specifications development in Program (MMRP).
anticipation of successful bond passage in The MMRP program NEXT HOUSES: Presenting a collection of
is estimated to be in 25 houses on five continents, Next
early 2010. Several districts passed success- Kevin Phillips, Houses: Architecture for the Twenty-First
ful bonds in the November elections and CEO, the billions of dollars Century is a tour of the finest residential
we are seeing announcements for increas- FPM Group and just beginning. architecture of this young century.
ing numbers of large K-12 projects for The program provides Author Ron Broadhurst has selected
which funding has already been secured.” a focus to address the potential explosive examples from nine countries showcasing
safety, human health or environmental established superstars and emerging
Edward Caruana, president, c|a ARCHI- risk posed by munitions-related activity architects including UNStudio, David Adjaye
TECTS (Long Beach, CA), a 30-person and David Chipperfield, among others. The
such as unexploded ordinance (UXO), products of dialogue between demanding
architecture, planning and interior design discarded military munitions (DMM), clients and innovative designers these
firm: and munition constituents (MC) that may houses represent the best and most
innovative living spaces, including homes
“Our only market sec- be present at our nation’s DOD facilities.
created with sustainability and
tor is health care and FPM is one of a handful of full-service eco-friendliness in mind— such as Werner
we do not feel it will be firms that prepare site investigations, geo- Sobek’s H16 and Krauss Schonberg’s Haus
unseated as the market physical investigations, removal actions W— as well as homes constructed on
challenging sites— such as Tadao Ando’s
sector leader. We are a and environmental remediation. FPM
4x4 House or Álvaro Leite Siza Vieira’s Casa
30-person firm that over the past five years has positioned itself Tolo. An authoritative collection, Next
has maintained staff by hiring experienced geophysical scien- Houses demonstrates uniquely
size and hours through tists and DOD-trained explosive experts of-the-moment architecture and offers up a
Edward Caruana, vision of how we will think of homes in the
President, this recession. We have so that it can handle worldwide assign- decades to come.
c|a ARCHITECTS felt the repercussions ments.” ■
Available through Amazon.com.

© Copyright 2009, ZweigWhite. All rights reserved.

The Zweig Letter
ZWEIGWHITE
 6 Issue 843: December 21, 2009
Ownership transition and leadership succession—
the planning challenge for the future
> When the time comes divest, owners have
two options: internal transition or external exit.
> Legal Matters All firms
face the
George challenge of
Christodoulo
dealing
with intergenerational leadership and
ownership. Firms that are growing pose a
more acute challenge because of the
urgent need for management talent,
financial resources, and capital. The chal-
lenge exists because firms must identify a
next generation of managers that has the
skills and training to lead the firm’s gov-
ernance, spearhead management and
administration, continue the firm’s ability
to generate business, and make the neces-
sary hard decisions. Firms must fund the
exit of senior shareholders as well as
growth, capital expenditures and acquisi-
tions with only a limited financial com-
mitment from a younger generation that
is risk-averse and less entrepreneurial
than its predecessors.
The choice all firms face is to pursue
either an internal transition, or an exter-
nal exit. Internal transitions are motivat-
ed by paternal/maternal feelings, a loyalty
to key long-term employees, lack of easy
identification of third party partners, a
sense that an internal transition is simpler
and less expensive than an external exit,
the fear of the unknown third party, and
the risk of cultural changes. An external
exit is often motivated by a goal of maxi-
mizing the price to shareholders, certain-
ty of deferred payments, and elimination
of the concern that the next generation is
not capable of running the business and
generating the necessary funding to buy
out the previous generation of owners.
The key elements of an internal transi-
tion are financial arrangements (owner-
ship), management succession and corpo-
rate governance (leadership), and cultural
continuity.
The financial challenges include decreas-
ing the ownership of the current
The Zweig Letter
leadership while increasing the ownership
of the next generation, as well as institut-
ing a long term program to ensure that
the firm is well capitalized and not over-
leveraged. The key concern is getting the
younger generation to buy shares over
time at favorable purchase terms. Since
much of the internal purchases are fund-
ed by bonuses and distributions, the key
to success is the sustained profitability of
the firm. Internal purchase programs may
include different levels of ownership, a
clear understanding of the criteria for
ownership, communication of an contin-
uing share-offering program and an
explanation of the operation of the firm.
Once it is decided where the
firm is to go, the question of
how to get there and the best
mechanism— internal transition
or external exit, must be
chosen and pursued.
The documentation for such purchases
includes a share purchase agreement, a
promissory note, a share-pledge agree-
ment and a shareholder agreement, often
with restrictive noncompetition
covenants. The management succession
steps include establishing the criteria for
selection, how to select new leaders and
yet retain and motivate unsuccessful
internal candidates, and how to build an
integrated team. New leaders need train-
ing and a transition period for the chang-
ing of the guard. The role of outgoing
leadership and the composition of the
board of directors (including both inside
and outside directors) must be addressed.
Finally, the firm must identify its culture,
identify the management style of the cur-
rent leadership, the leadership style of the
new generation, and decide which is
most appropriate for the challenges facing
the firm.
The chronological sequence of an exter-
nal transition includes the partner search,
purchase price/deal structure, transaction
documents, and closing and post-closing
matters. The search is typically imple-
mented with the use of an investment
banking intermediary who prepares a
confidential memorandum describing the
seller. The seller and the intermediary
profile prospective buyers, who are then
contacted on an anonymous basis.
Interested buyers then sign a confiden-
tiality agreement and, if there is mutual
interest, the parties then enter into
discussion.
When discussions progress between a sell-
er and buyer, the parties sign a letter of
intent (sometimes called memorandum
of understanding). This document, which
is typically nonbinding, confirms the key
deal points, identifies open topics to be
finalized and sets a timetable for closing.
The deal structure of the transaction can
be either an asset sale or share sale. The
components of the purchase price are
cash, promissory note, earnout and/or
shares of buyer.
Immediately following the execution of
the letter of intent, due diligence of
quantitative, qualitative and legal matters
is undertaken. Simultaneously, the trans-
action documents of the purchase and
sale agreement and employment agree-
ments are drafted. After due diligence is
completed and documents finalized, the
transaction is closed, announcements
made and integration and post-closing
business plans implemented.
Firm leaders and shareholders should ask
where the firm is now and where is it
going. What is the competition doing
and what is the firm’s strategic plan?
Once it is decided where the firm is to
go, the question of how to get there and
the best mechanism— internal transition
or external exit, must be chosen and
pursued. ■
GEORGE CHRISTODOULO, PC,
is a senior partner at Lawson & Weitzen,
LLP, Boston, MA. He can be reached at
GChristodoulo@lawson-weitzen.com.
ZWEIGWHITE
 Issue 843: December 21, 2009
7
Looking through the lens of leadership
> Put aside our outlook for just a moment a strategic decision and what doesn’t. In what the firm is capable of and interested
so we can talk about yours. Whether you’re
looking though a microscope or a telescope,
the coming year, when everyone is vying in handling. Consider what level of change
what do you see? for the same small batch of clients and is required— not just technically, but emo-
searching desperately for the ultimate tionally and professionally. Rather than ask
> Z View It’s a really great
point of differentiation, consider the focus what markets have money, ask what ser-
thing to be a leader
C h r i s t i n e of an architecture, certain leaders will have. vices are needed. Instead of chasing the lat-
B r a ck est trend, which is typically broad in
engineering, or envi- ■ Good— but not strategic. Strategy
nature, drill down into one particular area
ronmental consulting firm. The corner implies planning; thoughtful, deliberate,
within it. Is your organizational structure
office, company car, executive pay and and calculated thinking, the results of
capable of doing what needs to get done?
bonus, and ample vacation time are envi- which carry long term impacts and bene-
Will the board of directors be effective this
able prizes after years of dedicated work. fits. Deciding where to cut costs, imple-
year? What did they actually accomplish
Likewise, what’s not to love about the menting a system for quicker AR collec-
for us last year?
immense responsibility of guiding the tion, finding firms to collaborate with,
organization out of the worst economy in migrating to Deltek and Revit, or asking ■ Best— thinking like a strategist. We
decades? Who can dispute that the pres- managers to become more diligent about can all think of someone or some firm that
sure and power to make the right decisions business development is not strategic. landed what we deemed a lucky break and
were worth climbing the ladder for? These are fine maintenance activities cer- turned it into an exciting story of success.
tain people in the firm can perform, but This level of achievement is not always
The people we lead generally expect us to
they shouldn’t be the highlights. The team derived of methodical effort. It is possible
have answers for everything divined
is expecting much more and the firm will to be so engrossed in a business plan that
through absolute clarity— whether the cli-
require a whole lot more if it wants to one fails to capture a prime opportunity at
mate is stormy or calm. The truth is, we’ll
grow in 2010. the right time. Those chances arise in envi-
never have all the answers and we’ll never
ronments like these, where economists are
be perfectly certain that the decisions we ■ Better— asking intense questions.
unsure week in and week out, and where
make are foolproof. The difference for Before we even get to the place where we
the industries we are in involved in change
2010, however, is that leaders will be re- are balancing one option against another
before our very eyes. Leaders who think
evaluating the list of decisions to be and need to make a choice, we have to be
like strategists identify and utilize the
made— and concentrating efforts on those asking the right questions. Formulating
potential and swiftly make the decision to
most important to firms’ strategic plans. these requires an intense understanding of
pursue it. You can’t profit from waiting for
the marketplace and what’s brewing inside
There is also a strategic way to handle that others to try it and learning from their
it. It also requires an honest look inward at
filter— and wisely discern what constitutes lessons. Your success will come by pairing
your firm with a positive or negative
Our newsletters are packed with news you can use today, change in the industry, and twisting it to
analysis you can trust, the latest trends, management tips,
best practices, important events and resources to keep you
your advantage. It requires innovative
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The Zweig Letter
ZWEIGWHITE
 8 Issue 843: December 21, 2009
Economy
From page 1
sidiary of WSP Group plc (London,
United Kingdom), a 10,000-person
design, engineering, and management
consultancy service firm.
“With fewer opportunities to pursue, the
margin for error is significantly less, and
every firm must maximize the opportunities
presented to it,” Smith says.
Finding those opportunities is one thing.
Getting paid for taking advantage of
them— at least getting paid on a timely
basis— can be quite another.
“We’re looking at a 30-to-34% increase in
revenue in 2009, but our biggest issue has
been cash flow,” says Roland Salman, presi-
dent of RW Armstrong (Indianapolis, IN),
a 600-person global design and manage-
ment consulting firm. “People are holding
on to their money longer. You just have to
trust that you’re working with the right
clients and that you’re ultimately going to
get paid.”
A year ago, following the credit meltdown
and bank bailouts, the economy emerged as
the top challenge listed by firm leaders, but
finding qualified staff remained the third
most important challenge listed (with the
cost of health care listed as the second most
pressing concern). However, as business
slowed and thousands of architects and
engineers joined the ranks of the unem-
ployed, Smith says, “the dynamics of staff
recruitment and retention has become less
pressing of an issue. With that said— all
firms are focusing on retaining their key
staff and, as a result, highly qualified star
employees are still hard to come by.”
Donald Benvie, president and CEO of
TECTONIC (Mountainville, NY), a 312-
person civil, geotechnical, structural, survey,
environmental, construction management,
homeland security, materials testing and
information technology firm, agrees that
more qualified applicants have become
available during the economic downturn,
but that recruitment still poses some chal-
lenges.
“Project managers with five to ten years of
experience and construction managers with
The Zweig Letter
solid infrastructure experience are some-
what hard to find,” Benvie says.
Executives forecast that the economy will
eclipse other challenges for some time.
“For us, the most important issue is simply
business development,” says Tony Damon,
CEO at SSOE, Inc. (Toledo, OH), a 950-
person architecture, engineering, and con-
struction management firm. While SSOE
has a significant backlog of work going into
2009, Damon says, “over the course of the
year, we worked through that backlog and
due to changes in capital programs by many
of our clients, we were not able to replace
the backlog at the same pace.”
At TECTONIC, Benvie says, “the backlog
is there for 2010, but the big question is:
Where will the backlog come from for
2011?... The most pressing issue we are fac-
ing is the shrinking markets we serve in
both the public and private sector and how
to remain competitive on a cost basis with-
out sacrificing the quality for our work.”
Those shrinking markets have lead to
increased competition, firm leaders’ second
most-cited challenge. “Companies that
were doing private work are now shifting to
public sector projects, and larger firms are
going after small and medium-type pro-
jects, where you wouldn’t expect them to
submit a bid,” Salman says.
In a continuing slump, Smith says, long-
term planning gives way to concern about
“short-term business issues.”
“I expect a similar focus” for 2010, “though
we are working to position ourselves for a
positive change in the economy,” he says.
“We have done this primarily by continuing
our marketing and sales efforts in our weak-
er areas, so we are properly positioned when
the market changes.”
Those changes will come, and the economy
will recover, says SSOE’s Damon, but “we
anticipate it will be much slower to develop
than in the past.” In the meantime, he says,
the company plans to focus on core clients
and markets, “and we are looking at further
international expansion to take advantage of
the investment being made globally by
some of our best clients.”
Damon looks forward to the day when the
industry returns to its old worry of attract-
ing and retaining staff. “This is why we are
doing everything we can to make certain
our talented staff are treated well through
these tough times and will remain with us
when the job market improves,” he says. ■
> Firm Index
BLRB ARCHITECTS. RW ARMSTRONG.
Tacoma, WA. 5 Indianapolis, IN. 8
C|A ARCHITECTS. SSOE, INC. Toledo,
Long Beach, CA. 5 OH. 8
CUBELLIS. Boston, TECTONIC.
MA. 3 Mountainville, NY. 8
FPM GROUP, WSP GROUP PLC.
Ronkonkoma, NY. 5 London, UK. 1
LAWSON & WEITZEN, Some firm names
LLP. Boston, MA. 6 were omitted due
to space constraints.
> Got Ideas? Talk Back
Bill Lewis, Senior Editor.
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800-466-6275, ext. 262, or e-mail
blewis@zweigwhite.com.
João Ferreira, Editor.
Call me at
800-466-6275, ext. 245, or e-mail
jferreira@zweigwhite.com.
Craig MacCormack, Senior Writer.
Call me at 800-466-6275,
ext. 209, or e-mail
cmaccormack@zweigwhite.com.
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