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Strategic Growth Spiers

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EDR PRISM Event

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Strategic Growth Spiers

  1. 1. Accelerating Strategic Growth in the Environmental Industry Organically and through M&A Presented to EDR PRISM 2017 Al Spiers CEO 2020 Environmental Group
  2. 2. 2020 Environmental Group brings together a new perspective in management and M&A consulting aimed at helping environmental and engineering consulting companies open new paths to success. Companies in the business of the environment, and their private equity investors, call us when they have something pressing on their minds - whether it expanding into a new market, planning for ownership transition, or achieving strategic growth through M&A. 2020 Environmental Group
  3. 3. Globally, the market for environmental and engineering consulting services is expected to double by the year 2020, from $50 billion to $100 billion annually. With the emergence of major infrastructure development, energy, water and climate change, the business of the environment is hot and generating significant interest from United States, UK, Europe, China and private equity investors worldwide. Environmental Industry – A Global Business
  4. 4. Maturing Market and Global/Local Consolidation • Mega-mergers among the Big Boys (i.e. AECOM/URS, Stantec/MWH) • International buyers acquiring marketshare in the U.S. • Middle market firms ($75-$150 million revenue) have mostly been acquired, creating a void in the middle. • Smaller size firms are now not only the targets, they are becoming acquirers, with the goal of becoming the next middle market leaders. • M&A activity and valuation multiples for environmental firms are at an all-time high.
  5. 5. Is the Environmental Industry About to Shift? • Environmental Business Journal reports there are 3,300 environmental companies in the U.S. • 3,000 are “small companies” under 100 employees. • 70% of small environmental company owners are baby boomers who are looking at retiring in the next 3-5 years, with no ownership exit strategy.” • 300-500 small environmental firms could be putting up a “For Sale” sign by year 2020. • The result could be a shift in the supply and demand and current high M&A prices for environmental firms.
  6. 6. Overview of the U.S. Environmental Market A $30 Billion Industry Environmental C&E Industry: by Business/Service (in $million) USA 2016 Soil & Groundwater Remediation 5,980 Water Resource Management 4,815 Wastewater 3,960 Environmental Planning & Permitting 4,825 Environmental Impact Assessments 1,650 Air Quality 2,230 Waste Management 5,310 Other 900 Total 29,670 Source: Environmental Business Journal, 2017.
  7. 7. Who is Buying Environmental Services? Environmental Markets USA Total (in $millions) Private Sector 13,970 48% Government (State, Local, Federal) 15,820 52% Total U.S. Environmental Consulting & Engineering 29,790
  8. 8. EnergyWater Natural Resource Management Infrastructure and Transportation Real Estate and Land Development Education and Health Care Industrial and Manufacturing Market Drivers for the Env Industry To achieve growth in today’s economy, the common denominator will be companies with a strong presence in the “Big 4”…Land, Infrastructure, Water, Energy Federal
  9. 9. Market Headlines • US Economy on Modest Growth Track, 2.5% GDP in 2016-17: Low inflation, low interest, low wages, low morale • Global Economy Going the Same Way: Winding Down of Globalization and Emerging Economies (China, India, Brazil, Russia) • Real Estate: Property Values remain high. Drives local real estate development, transactions, speculation, urban infill, brownfields, upgraded infrastructure. • Local and State Government – property and business tax revenues high, funding new capital works projects. • Oil & Gas in the tank. Energy markets aiming for an Elusive Equilibrium in Supply and Prices. Cleantech and renewables poised for an uptick. • Commodity Prices: Global slump in Mining & Natural Resources • Global Climate Commitments: Growth in Renewable Energy and Continued Emergence of Adaptation & Resilience • Trump Effect - Impacts of a New President
  10. 10. Historical and Expected Growth Rates in the Env Industry Source EFCG
  11. 11. Ranking of Growth Prospects by Geographic Region: 2016-2017 (Source: EBJ) Very Strong Strong Good Slow/Flat Decline US: Southern California 12% 15% 36% 36% 0% US: Southeast 10% 13% 35% 39% 3% US: Northern California 6% 18% 32% 44% 0% US: Pacific Northwest 6% 18% 29% 44% 3% All United States 0% 19% 46% 32% 3% US: Mid-Atlantic 0% 20% 43% 33% 3% US: New England 0% 19% 42% 35% 3% US: Gulf Coast/Texas 3% 19% 34% 34% 9% US: Southwest/Desert 3% 9% 30% 55% 3% US: Rockies 3% 9% 35% 47% 6% Mexico 6% 6% 19% 61% 6% US: Midwest 0% 3% 42% 48% 6% Eastern Canada 0% 3% 23% 67% 7% Western Canada 3% 0% 17% 67% 13%
  12. 12. Organic growth must be a firm’s top priority. • Organic growth is best, but is slow, particularly with few new market drivers • Competition and winning marketshare is becoming harder. • Growth by recruiting is difficult. To achieve +10% growth in today market, you need Organic and M&A. • M&A provides immediate access to new markets and geographies • New client relationships that would have taken years to develop • New staff expertise and the backlog to support them. • Exposes existing staff to new career opportunities • Builds critical mass for a stronger market position and more competitive role • Immediate increase in revenues and profits • Creates long-term shareholder value Achieving Strategic Growth in Today’s Market
  13. 13. • What new businesses or markets would you like to be in? • What business lines are growing and profitable? • What are you NOT good at? • What businesses or markets should you get out of, and would free up cash for expansion in new areas? • Does your company have an “entrepreneurial spirit” or a “lifestyle culture”? • Is your management and organizational structure equipped to handle the growth? Is your organizational structure a bottleneck to growth? • What are you doing to build “brand name visibility” in your marketplace? Key Points for a Strategic Growth Plan
  14. 14. Strategic Market Analysis What are you good at and where do you want to be? Clients • … • … • … • … Markets • … • … • … • … Geographies • … • … • … • … Services • … • … • … • …
  15. 15. • Buyers need to develop a Strategic M&A Acquisition Plan that clearly identifies what you want to do, where and why. • Understand the Seller’s perspectives and challenges, particularly owners of smaller firms who are “selling the baby.” • Develop realistic purchase price expectations • Have Integration Plan that shows the seller and their staff how they fit in, and the added value of the merger. Achieving Growth thru M&A? Have an M&A Plan
  16. 16. • Be pro-active not reactive • Develop an Exit Strategy and M&A Sale Plan • Get your house in order • Stable leadership/management that stays • GAAP financials by outside CPA • Steady earnings • Diversified clients and markets • Backlog reporting and growth forecasts • Excellent project management and cash management • Clean up inter-personal/company affairs • Have realistic price expectations – Sellers typically think their firm is worth more than it is. • Understand what goes into an external “M&A valuation” and work in advance to maximize your external market value. • Develop a Strategic Plan that shows where growth will come from in 2-3 years. • Communicate with your Principals and include their expectations and goals (financial and career). Considering Selling? Prepare in Advance
  17. 17. • Times are good and the economy is cooperating. But start planning now for an economic downturn by late 2018. • Organic growth must be your top priority. • Think strategic. Identify and focus on the services, markets, geographies and clients that are key to your business. • M&A can be an important part of an overall growth strategy, with a well thought out Plan and an understanding of the risks. • It is not just about Revenues and Profits, but growing the firm’s Shareholder and Market Value. Summary and Take Away’s
  18. 18. 750 Battery St, Suite 700 San Francisco, CA 94111 Al Spiers 415-848-5657 Email: al@2020env.com www.2020env.com Thank You

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