Designing a Super-firm
"Starchitects" like Frank Gehry and Renzo Piano may dominate the headlines. But it's the super-firms that dominate the global building industry. Rampant mergers and acquisitions are resulting in firms that are powered by an unusually large collection of architects. The recent acquisition of New Jersey's Hillier Architecture by Edinburgh (Scotland)-based RMJM, followed by the July 6 acquisition of Baltimore-based RTKL Associates by Arcadis, whose global headquarters is in Arnhem, Netherlands, exemplifies an emerging trend in which architectural firms are shelling out big bucks to super-size themselves.
"Consolidation is coming late to design because a lot of the firms were very focused on individual markets," says Kermit Baker, chief economist for the American Institute of Architects (AIA). "Now firms are seeing the benefits of scale in terms of being more competitive and diversified and being better able to weather the ups and downs of local construction cycles. The trend is likely to continue."
The Advantages of Scale
RMJM bought Hillier, the 19th-largest U.S. firm (according to the industry magazine Architectural Record, which, like BusinessWeek, is published by The McGraw-Hill Companies (MHP)), for $30 million and will rebrand its new U.S. division as RMJM Hillier. Hillier's Princeton (N.J.) headquarters will now form the U.S. branch of a global firm that has offices in Britain, the Middle East, and Asia. With the addition of Hillier's 350 designers, the firm will now employ 1,100 designers in 18 offices around the world, with a projected $15 billion in construction value globally.
"Size allows clients to have the very best skill set available at a number of locations, and you have the ability to bring in design talent from anywhere in the world," says Peter Morrison, CEO of RMJM. But, he adds, this is not about being large per se. "This is about delivering quality design around the world, using size as an advantage where you can."
For one thing, size can mean having greater technical capabilities. For example, Bob Hillier, who has run his eponymous firm since he founded it in 1966 and who will now be deputy chairman of MJM Group, the holding group of RMJM, says that more clients are expecting to see animated walk-throughs of a project plan, a stunt that can cost up to $25,000. Hillier can now use the company's new financial punch to deploy this type of capability on a regular basis. "Technology costs money and you need to be able to buy those commodities and manage them," he says. "A small firm can't put all its eggs into one project." RMJM's expansive global reach will allow Hillier to search the world for opportunities. Before the merger, the firm was focused on the U.S. domestic market, in particular on the higher-education institutions it has built for U.S. corporations and U.S. universities such as Duke, Princeton, Cornell, and Brown.
Creating a "Global Design Brand"
But these mergers can have equal upside for the larger firms, too, bringing competitive advantage to the acquiring organizations. RMJM, for instance, is looking to capitalize on Hillier's strong presence and reputation in higher-education projects and use its relationships as an entrée into the U.S. marketplace. It can also use Hillier's international contacts—the firm has been working on K-12 institutions for American expatriates in Dubai and Singapore—to further its global reach. Bob Hillier projects that higher-education projects will account for 25% of RMJM Hillier's projected $200 million revenue for 2007.
"My vision is to create a global design brand," says Morrison. "That's why it's necessary to have a presence in one of the largest architectural marketplaces in the world, the U.S. Global outreach was at the forefront of the decision-making process."
In addition, U.S. architecture firms, both big and small, seem like solid bets in the global architectural marketplace, projecting steady growth in both domestic and international nonresidential buildings. The average net profitability for U.S. architectural firms in 2005 was a healthy 13.9%, according to a survey conducted by the AIA at the end of 2006. And despite ongoing troubles within the housing and homebuilding market, Baker contends the nonresidential market has gotten only stronger since then. That success, coupled with the buying power of larger firms, gives the results of these mergers an edge when vying for global projects.
"They can bring all these skills together and have more clout in terms of marketing in a much larger domain. They can have instant credibility in a situation where neither firm could have worked [as an independent]," Baker says. "Starchitects will give you a high-profile building—but super-firms provide one-stop shopping for clients."