Although the UK property and construction sector uses a wide range of different business vehicles, the consultancy businesses that support and enable the sector are much more likely to rely on a traditional partnership business model.
Historically, the UK property consultancy market can been in broken down into a number of sub-sector services with private sector buyers seemingly preferring to have different providers for different services. The broad groups of subsectors can be categorised as follows:
- Architecture
- Cost consultants & Project management
- Engineering services
While firms within these subsectors have merged or been acquired, very few firms have expanded into other subsectors. However, engineering firms have proved to be an exception with many acquiring other firms to add additional services, such as planning, to their services portfolio.
One stop shop approach
In contrast to the UK, the US property sector sees much more of a one stop shop approach for property consultancy with many multi-disciplinary firms offering a wide range of the services under one roof.
For businesses serving the UK public sector market there are likely to be advantages for the one-stop-shop approach. Public sector organisations operate under strict procurement rules which require a firm to qualify for the framework before they can be engaged. However, once a firm has succeeded in getting onto the framework, public sector organisations often appreciate the benefits of dealing with fewer suppliers, so there are clear opportunities for multi-disciplinary businesses.
Buying in
Aside from domestic consolidation driven by engineering firms seeking to expand their services, most of the recent transactions in the property sector service firms stem from North American firms acquiring UK businesses across different disciplines to enter the UK market. See recent examples below:
| Business | Head quarters | Bought | Type of business | Year |
|---|---|---|---|---|
| Arcadis | Netherlands | EC Harris | Cost consulting | 2011 |
| Hyder | Engineering | 2014 | ||
| Callison | Architect | 2014 | ||
| Stantec | Canada | MWH | Water Engineering | 2015 |
| PBA | Engineering | 2018 | ||
| Barton Wilmore | Architect | 2022 | ||
| Tetra Tech | US | White Young Green | Engineering | 2019 |
| Hoare Lee | M & E | 2021 | ||
| WSP | Canada | RPS | Planning | 2022 |
| John Wood Group | Engineering | 2022 | ||
Services which were traditionally stand alone, such as architecture, are now part of the consolidation trend.
Future trends
In trying to predict future trends, there are many questions that arise from transactions we have seen. For example, Why are there so few large UK headquartered consolidating businesses?
Perhaps part of the answer to this lies in the business model adopted by firms in the sector: is it perhaps the traditional partnership model used in the UK that makes it harder for firms to build up a war chest for acquisitions and expansion? As with other industries, private equity investment to support them to expand into new subsectors may be an attractive option for some firms.
High inflation, high interest rates and stagnant demand is creating difficult market conditions for the property as a whole in 2023. When budgets are under pressure and competition increases, it seems likely that more consolidation will take place amongst the professional service firms operating within it. But that doesn’t necessarily mean a multi-disciplinary approach will be attractive – it will likely be seen as carrying more risk in difficult times.
The law and accountancy sector has already seen much consolidation and some moves away from traditional partnerships to a corporate model. Whether property sector firms can draw positive lessons from the consolidation of law and accountancy firms remains to be seen.
Planning ahead
Professional service firms face many headwinds in 2023 with a wide range of issues to deal with, from basis period reform to staffing shortages driving wage inflation while clients are increasingly cost conscious and with many choosing to defer projects until a more favourable time. Yet there are benefits to be had from mergers that can expand the services you offer, and if you are considering such a transaction, it will be vital to assess all the implications and thoroughly war game the practicalities of any deal.
For help and advice on and the implications of any structural changes to your business please contact Frances Edwards, Neil Williams or Louise Cupples.