NEW FROM ZWEIG GROUP
2020 FINANCIAL PERFORMANCE SURVEY Zweig Group’s 2020 Financial Performance Survey includes comprehensive data on the financial performance, financial departments, challenges, methodology, and financial practices of AEC industry firms. The 2020 edition has been updated with an additional chapter on COVID-19 outlook and budget/revenue projections. ❚ ❚ Key financial statistics. This chapter includes net service revenue and profitability measures, labor multipliers, turnover rates, and professional/technical to administrative staff ratios, and so much more. Data is also segmented by firm type, staff size, region of headquarters, growth rate, and client base, with multiple years of trend data for overall medians or means. ❚ ❚ Personnel costs. Five major types of personnel costs are analyzed in this publication including: payroll taxes, vacation, holiday and sick leave, group insurance, pension, profit sharing and 401(k) plans, and bonuses. Trend data is also given for historical spending comparisons. This section also includes data on workers’ compensation premiums and claims. ❚ ❚ Other financial statistics. In addition to all the above information, this publication has data on additional financial topics – everything from financial software applications to cash flow reports and professional liability insurance. Visit zweiggroup.myshopify.com to learn more about the 2020 Financial Performance Survey.
JAMIE CLAIRE KISER, from page 1
tough, and it’s realistic to plan for a more extended timeframe than your firm may be accustomed to as a result. Even in the friendliest of transactions, due diligence is inherently stressful. Add that to the pressure-cooker of a year that 2020 has been, and the only thing that will keep a transaction on track is the sheer will of the parties involved, which requires one critical ingredient: authentic trust. As an aside, due diligence this year needs to deviate from the template to incorporate conversations about employment liabilities earlier in the process (such as off- balance sheet PTO accruals), analysis of PPP loan proceeds and loan documents, and increased emphasis on free cash flow over typical adjusted EBITDA analysis. As negotiations proceed to deal structuring, the current climate presents an occasion to re-assess your financing strategy. Every firm is in cash conservation right now, as concerns over working capital remain appropriately top of mind. Several buyers we work with are considering deploying their equity as consideration to minimize their cash outlay, meaning paying for the firm they are acquiring by using the buyer’s stock as part of the payment. There are plenty of reasons that equity can be fantastic “currency,” sure, but your deal team would be wise to avoid a myopic focus on conserving cash that goes straight to the most expensive capital that there is for most AEC firms: ownership. The median return on equity last year in the AEC industry according to Zweig Group’s 2020 Financial Performance Survey was 54.4 percent (pre-tax, pre-bonus). Equity is expensive capital – especially if your firm is in growth mode. I actually had one CEO tell me that they prefer using stock ownership to finance transactions over debt because taking on debt “hurts their valuation” (begging the question “valuation of what?”). Rather than either cash or equity, consider third-party interest-bearing debt. It is unfortunate that debt aversion is almost debilitating for many firms in our industry, especially when interest rates remain very low. Despite the challenging environment, there are tremendous opportunities to be had, whether the time is right to close a transaction or to invest in building a long- term relationship that may eventually turn into a partnership. JAMIE CLAIRE KISER is managing principal and director of advisory services at Zweig Group. Contact her at email@example.com.
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THE ZWEIG LETTER JUNE 22, 2020, ISSUE 1350
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