...SmithGroup was interested in a $1-billion expansion program at Emery University in Atlanta, where it didn’t have a local office. “It turned out that six of our 12 largest competitors already had local offices in Atlanta and were bidding on the job, so we withdrew.”

This has fueled the frantic program of expansions among large design firms. SmithGroup has opened new offices in Minnesota and North Carolina, and is looking to acquire local firms in other areas, as well. “There are a lot of local firms that are actively looking for merger partners to have the capacity to compete for work,” Roehling says. “Most regional firms realize they are getting squeezed from both sides and are amenable to acquisition.”

For many mid-sized firms, acquisitions have fueled more focused growth. “We developed a strategic plan a few years ago to narrow our focus on areas of growing population in the Southeast,” says Michael W. Creed, CEO of McKim & Creed. The firm had bought a water engineering firm on Florida’s west coast in the 1990s, and supplemented that acquisition with three small surveying and mapping firms and some of its own resources. The result was that the firm’s fortunes took off along with as that area’s development. “We were just in the right place at the right time with the right product,” Creed says. He notes that development on Florida’s west coast is beginning to cool a little, “but I think that’s for the best, because I don’t think that level of growth was sustainable.”

THE 2007 TOP 500 AT A GLANCE
VOLUME      
 
DOMESTIC 
INTERNATIONAL 
TOTAL 
 
$BIL.
% CHG.
$BIL.
% CHG.
$BIL.
% CHG.
REVENUE
54.7
+15.4
14.9
+25.7
69.6
+17.5
PROFITABILITY      
 
NUMBER OF FIRMS REPORTING 
AVERAGE % OF 
 
PROFIT
LOSS
PROFIT
LOSS
DOMESTIC
455
9
11.0
NA
INTERNATIONAL
135
23
11.0
NA
PROFESSIONAL STAFF      
 
NUMBER OF FIRMS REPORTING 
AVERAGE % OF 
 
DOMESTIC
INTL.
DOMESTIC
INTL.
INCREASE
381
85
14.7
39.7
DECREASE
  30
5
10.3
31.7
SAME
 72
23
NA
NA
BACKLOG      
 
NUMBER OF FIRMS REPORTING
AVERAGE %
HIGHER
325
20.6
LOWER
43
9.3
SAME
91
NA
MARKET ANALYSIS  
TYPE OF WORK
REVENUE
$MIL.
PERCENT
OF TOTAL
BUILDING
16,473.5
23.7
MANUFACTURING
1,403.7
2.0
INDUSTRIAL
3,470.1
5.0
PETROLEUM
10,818.9
15.5
WATER
4,191.9
6.0
SEWER/WASTE
4,911.0
7.1
TRANSPORTATION
13,392.7
19.2
HAZARDOUS WASTE
7,318.0
10.5
POWER
4,947.0
7.1
TELECOMMUNICATIONS
785.5
1.1
OTHER
1,901.8
2.7
INTERNATIONAL REGIONS   
 
NUMBER
OF FIRMS
REVENUE
$MIL.
PERCENT
OF TOTAL
CANADA
114
2,462.1
16.5
LATIN AMERICA
124
659.9
4.4
CARIBBEAN ISLANDS
93
313.3
2.1
EUROPE
129
4,429.4
29.7
MIDDLE EAST
123
2,709.7
18.2
ASIA/AUSTRALIA
149
3,535.8 23.7
AFRICA
58
781.4
5.2
ARCTIC/ANTARCTIC
1.2
0.0

There are many firms that are having difficulties in finding enough people to do the work and see acquisitions as a way to strengthen their staffs. Despite the downturn in private housing development in California, Psomas has been scrambling to reallocate resources to keep up with demand. “We merged with three firms recently,” says CEO Blake Murillo. He says that the moves were made in part to add to its expertise in the water sector. “But in one case, it was to add to our bench strength,” he says.

One firm that has set its sights on more targeted expansion is Vanasse Hangen Brustlin. “There are always people who are looking for the greener grass,” says Bob Brustlin, CEO. “The big firms acquire others to focus on big projects. But I think these megaprojects will be fewer in the future,” he says. Instead, Brustlin believes that public agencies will focus on trying to get more out of existing assets. So VHB is building depth in the areas it already serves—New England, mid-Atlantic states and Florida—rather then reaching out into new regions.

Brustlin notes, for example, that VHB recently acquired BMI-SG, a traffic engineering firm in northern Virginia. “Traffic engineering gives you the insight about local concerns that a highway designer can use to enhance its package of services to local agencies,” Brustlin says. “Having this depth of local expertise means we can be the lead on mid-sized jobs, but are an integral part of teams on the large projects.”

Not every firm is impatient to acquire others. “We will look at some potential strategic acquisitions, but we prefer to grow internally,” says Ken Graham, CEO of the HNTB Cos. “We really want to maintain our corporate culture.” Simpson Gumpertz & Heger is another firm resisting the urge to merge. “We made a decision that we like our size and like to be in control of our own destiny,” says CEO Glenn Bell. “We prefer to grow organically. It gives more opportunities for our own people to grow in their jobs.” And Everett Cowen, chief operating officer of Gresham Smith & Partners, adds: “We’re growing the old-fashioned way: one quality employee at a time.”

One subtle impact of the acquisition spree by the large publicly held design firms is that they may be making it more difficult for the more traditional privately held designers to attract top talent as partners. “For many architects, it may be better from their standpoint to be an employee with some equity rather than commit resources to become a partner,” says Roehling. He notes that in the traditional...