Summary of EFCG’s Services and Role in the A/E/C Industry
EFCG’s mission is to help a/e/c firms become more business and financially efficient at improving global infrastructure and sustainability, while creating greater value and opportunities for their shareholders and employees. Founded by Paul Zofnass in 1990, EFCG offers 10 types of services, which are intended to complement one another:
- Conferences and Surveys: Since 1990, EFCG has held an annual conference for CEOs of major a/e/c firms to discuss the key business, financial and management issues facing the industry. Now in its 27th year, the conference brings together 220+ CEOs, including those of most of the largest a/e/c firms, and many of the smaller and midsize firms. It is a 3-day, by invitation only event, that requires every participant to complete a confidential survey covering over 100 key financial and operating metrics (growth, profit, sector outlooks, etc.). We present the consolidated trends and implications in a 90-minute Industry Overview Analysis, followed by a number of CEO panels. In addition to the CEO Conference, EFCG also hosts similar conferences for Chief Financial Officers (16 years); Chief Human Resources Officers (7 years); “Rising Leaders” (to help firms develop next generation leadership) (2 years); and Chief Information Officers (1 year). Our surveys provide a 25+ year database, which we use to benchmark our clients’ performance against that of their peers, and observe trends that are likely to impact their strategy. When clients request more detailed information on specific issues, EFCG will perform “mini-surveys”, which are distributed to 20 – 30 of our retainer clients, and share the results with the participants. It typically only takes us 2-3 weeks to complete a “mini-survey”, given our relationships and reputation for confidentiality, data analysis and insights.
- Peer Benchmarking Analyses (PBAs): PBAs use our conference survey data to compare a firm on over 100 key operating and financial metrics to 30-40 of its closest peers. For each metric, the client will receive a sort of all the peer firms’ data points, but we do not identify which data point goes with which firm, thereby protecting confidentiality. We find that PBAs are an invaluable management tool, as they objectively point out where a firm is strong, and where there may be opportunities for improvement and value creation. Since most of the firms in our database are private companies, the data is not publicly available.
- Retainer Clients: We provide PBAs, financial and strategic advice, access to our 25+ year database, speaking roles at our conferences and our goodwill to the CEOs, CFOs, Management Committees and Boards of our 50+ retainer clients. The monthly retainers range from $2,500 – $10,000 per month, depending upon the scope of the agreement and size of the client. The majority of our retainer clients have maintained their relationship with EFCG for over 10 years, and a number for over 20 years.
- Ownership, Compensation, Capitalization and Governance Plans (“OCCPs” or “OCCGPs”): One of the biggest challenges that privately-held a/e/c firms have is to create an effective balance between their Ownership structure, Compensation plans, Capitalization and Governance. These four components are each critical to a firm’s long term success, yet they are interrelated and need to be consistent with the culture and strategy of a firm. One of EFCG’s primary services is to help firms create OCCPs that provide the right financial incentives, capital resources and leadership for sustainable value creation.
- Mergers and Acquisitions (“M&A”): EFCG has advised on over 140 completed M&A transactions in the a/e/c industry, far more than any other financial advisor or investment banking firm has completed in this field. Sell-Side Assignments: Roughly half of our M&A work involves helping small, medium and large firms find a buyer that will provide a strategic fit and attractive price. To a large extent, achieving an attractive price is a function of having multiple options and / or finding an acquirer for whom there are significant synergies, and who therefore is willing to pay a premium price. Since we likely know for whom the prospective acquisition will be most valuable, and for whom it would not be valuable, we can save our sell-side clients a lot of time going down “wrong paths”, and provide a more confidential process. We go directly to the key decision makers, generally the CEOs, who are in a position to make an informed indication of interest, and are less likely to breach confidentiality, especially since they know they will no longer see candidates from us if they do so. In this way we can “test the market”, while providing a high level of confidentiality, before our sell-side clients need to commit to a decision. Buy-Side Searches: Roughly 1/3 of our M&A work involves assisting clients with buy-side searches, which typically entail identifying appropriate targets, and helping bring a transaction to fruition. Clients may be searching for a small “tuck-in” acquisition from our database of roughly 3000 a/e/c firms, or they may be looking to acquire a major a/e/c firm. Our relationships with many high quality firms enable us to not only open doors, but assess the potential strategic and cultural fit. Mergers: While there is no such thing as a true “merger of equals”, a merger between two firms where most of the financial consideration comes by way of a “stock-for-stock” exchange is an effective way of achieving the mutual benefits of a merger, without the need to overly financially leverage either firm. We are particularly adept at advising both sides, and helping them come to a mutually beneficial agreement. Mergers represent roughly 10% of our M&A work. Divestitures: Given the importance of maximizing efficiency, sometimes firms want to divest a geographic group or business practice that is not a “good fit” for the parent company. Knowing the industry as we do, and who is looking for what, we can frequently effect such transactions efficiently and confidentially at a fair valuation. Divestitures also represent roughly 10% of our M&A work.
- Recapitalizations: a/e/c firms have significant capital needs for several reasons. Working capital: a/e/c firms have traditionally collected receivables very slowly (90 days on average), particularly in comparison with how quickly they pay their expenses (the largest expense is employee compensation, which is paid bi-weekly). Hence growth requires significant incremental investment. Share repurchases: since the vast majority of a/e/c firms are employee-owned, when employees retire, other employees and / or the firm must buy their shares. Since the younger generation is generally unable / unwilling to purchase all the shares at a “fair” price, the company must often purchase shares from retiring employees. Acquisitions: with acquisitions becoming an increasingly important, capital is needed to fund those acquisitions. Increased business risks: the industry is experiencing a trend towards alternative delivery (design / build, P3, fixed price contracts, etc.), which may require deeper capitalization to assume the incremental financial risks. Given these capital needs, a/e/c firms may benefit from recapitalization through mergers, private equity, private debt financings, public offerings, or internal recapitalizations, such as tax-advantaged ESOPs.
- Valuations: Since most a/e/c firms are privately-held, their approach to internal valuation is critical to their corporate strategy. A low valuation may lead to a sale, and if the firm does not sell, retiring shareholders may receive far less than fair market value for their stock. In addition, a low valuation makes acquisitions financially inefficient. On the other hand, a high valuation makes it difficult for a firm to repurchase shares of retiring or departing employee shareholders. And too volatile a pricing strategy (e.g. using a formula that heavily weights a short period of earnings) can create a moral hazard, especially if shareholders retire during a difficult period. EFCG is an expert in the valuation of privately-held a/e/c firms, both in an M&A context, as well as in an annual or periodic valuation for internal ownership transition purposes (including for ESOPs). We serve as the primary valuation appraiser to roughly 25 a/e/c firms, and provide ad hoc appraisals and advice to another 50 or so firms in any given year.
- A/E/C Industry Presentations: We are frequently called upon by our clients, industry organizations, or through ad hoc requests, to provide presentations on industry issues. We have spoken at several dozen major a/e/c professional association meetings, in the US and abroad, and regularly make presentations for company shareholder, Board and management committee meetings.
- Industry Publications: EFCG publishes a semi-annual Industry Overview Letter, which provides our thoughts on the latest a/e/c trends, M&A activity, public markets and more. We also publish quarterly financial metrics for all the major publicly traded e/c firms in the US and abroad.
- Ad Hoc Assignments: We assist firms with a particular situation, challenge or perceived need, so long as the firm is involved in the a/e/c industry, our exclusive area of focus.