JLG could draw interest as market heats up, industry sources say
The architecture and engineering (A&E) market is experiencing a shortage of talent, with more firms looking to acquire as a hiring strategy, explained Jamie Claire Kiser, director of consulting for Zweig Group, a management consulting firm focused on the A&E sector.
Growing market stability and lower interest rates are also giving a confidence boost to the market and fueling M&A, added Kiser and two industry bankers.
Multiples for middle-market businesses have typically ranged from 3x to 5x EBITDA, according to Kiser, who said the market is now seeing valuations in the range of 4.5x to 7x EBITDA.
Lonnie Laffen, a North Dakota State Senator and the 59-year-old co-founder and CEO of JLG, said JLG would consider sale interest, especially as a way to better compete for larger projects. JLG is not in an active process and under no pressure to sell, he added.
With its roots in the oil & gas sector, JLG saw revenue peak in 2015 at USD 29m and then drop to 24m in 2016 and USD 22m in 2017 during an overall market downturn, Laffen said. In response, JLG shifted focus to the sports and healthcare markets, now its primary sectors. The company, which has 110 employees, also caters to the education, civic and corporate sectors.
Additionally, JLG expanded its geographic footprint, acquiring Minneapolis-based Studio Five Architects and Rapid City, South Dakota-based architecture firm AcV2 in 2016. The company now has 12 offices throughout North Dakota, South Dakota and Minnesota, and additional business in Iowa, Colorado and Wisconsin.
JLG is projecting growth again in 2018, potentially up to USD 24m in revenue, according to Laffen. The company’s EBITDA margin is 10% and expected to increase this year as well, he added.
Laffen said JLG has never received sale interest, to which Kiser responded, “it doesn’t surprise me.” Many acquirers in the space have been very specific about their acquisition criteria, leaving few opportunistic buyers just seeking a good deal or match.
However, at its current size and scope, and with market tailwinds at its back, JLG might whet buyer appetite, Laffen, Kiser and the bankers agreed. They pointed to Chicago, Illinois-based Perkins+Will’s acquisition this past October of JLG competitor Sink Combs Dethlefs (SCD), a Denver, Colorado-based firm that also specializes in the sports market.
A mid-sized architecture firm with more than 250 employees would be an ideal buyer for JLG, according to Kiser, who noted that architecture firms do not grow fast enough to attract private equity.
Larger JLG competitors include Meyer Scherer & Rockcastle, HGA, DLR Group and LHB, according to Laffen. All could be potential buyers of JLG, said Kiser and the bankers.
Kiser and the bankers also agreed with previous reports by this news service naming Edmonton, Alberta-based Stantec and Dallas, Texas-based HKS Architects as potential JLG suitors. HKS has multiple worldwide offices, but none in JLG’s coverage area. Top-tier player Stantec has done some smaller deals, for example, acquiring 24-person JDA MacKenzie Architects in 2013.
JLG might also be well served to merge with a similar-size company that also has experience in highly regulated industries, such as St. Paul, Minnesota-based BWBR, Kiser added.
In addition to architecture services, JLG offers interior design, sports branding graphics, construction management and owners’ rep services. The company recently formed a real-estate division that develops and sells mixed-use housing, retail and office space.
Chartwell Capital Solutions advised JLG on its 2014 Employee Stock Ownership Program (ESOP). Bremer is the ESOP trustee. JLG’s corporate advisors include law firm Stinson Leonard Street and accounting firm Brady, Martz & Associates. Its debt provider is Alerus.
You can reach Kiser at email@example.com.