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FMI Quarterly/March 2017/March 13, 2017

Succession and Transition: Building the Future

Succession management and ownership transfer are critical topics in today’s engineering and construction (E&C) industry. As with all business sectors across North America, the baby-boom generation is exiting the E&C industry at an accelerated rate. 

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Company leaders need to ask themselves the questions: Who’s going to lead and manage my firm? Who’s going to take over ownership? Do I have the right people in the right seats? These are just a few of the many questions that industry participants should be addressing to perpetuate their businesses into the next generation.

What’s unique about our industry is that over 99% of the firms are privately owned. For most of these companies, the option to transition from one generation of leaders and owners to the next is rather limited. Many of these firms must turn to their internal workforces to transition leadership and ownership over time (through some form of internal ownership transfer, for example). The hard reality is that only a small percentage of construction firms are salable to a third party at a reasonably acceptable price and terms. Because the sale option is not on the table for the majority of E&C firms, we have to look more carefully at internal transfers and succession—a prospect that’s not always easy to tackle when owners assume that their firms are worth more than their employees can afford to pay.

We encounter companies with ownership and leadership transition challenges daily. So, for this Quarterly issue, we decided to share some of our best thinking around these topics and provide key insights into the most common industry challenges and opportunities. It’s time to raise the conversation that we’re having as an industry on this subject since most companies are already behind in their planning and transition processes.

The firms that are most successful transitioning into the next generation—be it the first generation transitioning to the second or a multigenerational handing over the reins—are the ones that take a proactive approach to the issue. These firms also have a very clear idea of where they’re going as an organization, and they’re very proactive about developing the leadership and management teams that they need to get them across the finish line (and beyond).

Time works against you when it comes to transitioning ownership and leadership of a privately held engineering or construction firm, with 10 years being the optimal start-to-finish completion period for a successful ownership transfer. So whether you run a small trade contracting firm or a billion-dollar, multidivisional family business, time is your enemy. By taking the time to develop robust leadership, effective management programs and an ownership transition process that works for everyone, E&C firms will be well-braced for success for years to come.

Chris Daum
CEO, FMI Corporation

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