Ep. 6: The 3F's of AEC M&A: Fit, Future, and Financials

In this episode of AEC Unscripted: M&A Edition, host Jeff Adams of Stambaugh Ness sits down with Ernesto Aguilar, President & CEO of Ardurra, a private equity-backed firm, to explore the crucial elements behind successful mergers and acquisitions in the AEC industry. Together, they break down Ardurra’s 3F's rule—Fit, Future & Financials—and how these factors determine the outcome of any M&A deal.

Drawing on his experience leading Ardurra through private equity-backed growth, Ernesto offers valuable insights into evaluating financial health, anticipating industry trends, and ensuring cultural alignment for long-term success. Whether you’re part of a leadership team considering a merger, navigating private equity, or curious about how to thrive in today's competitive landscape, this episode delivers actionable strategies and hard-won wisdom to guide your next M&A decision.

Tune in for an engaging discussion that uncovers the key to unlocking AEC M&A opportunities through the lens of private equity-backed expansion.

Chapters

• 0:00 Introduction and Background
• 4:54 Ardurra's Growth and Acquisition Strategy
• 7:46 Ardurra's M&A Team and Process
• 9:07 The 3F Rule: Ardurra's Acquisition Criteria
• 11:34 Cultural Fit in M&A
• 18:32 Future and Growth Potential
• 22:46 Financial Considerations
• 31:31 The Importance of the Employee Engagement Partner
• 34:31 Why Choose Ardurra

Transcript

[Intro] 00:00

Welcome to AEC Unscripted: M&A Edition, your go-to podcast for unfiltered conversations and expert analysis, brought to you by Stambaugh Ness.

[Opening Credits]

Jeff Adams 00:27

Welcome to AEC Unscripted. I'm your host, Jeff Adams, the Director of Mergers and Acquisitions at Stambaugh Ness. Today, we're going to be exploring M&A through the lens of an experienced private equity-backed strategic buyer. I'm delighted to have joining me for this episode, Ernesto Aguilar, the CEO of Ardurra Group. 

Ernesto has been the President and CEO of Ardurra since 2018, where he's been the driving force behind its remarkable growth from 230 employees in 11 offices in 2017 to now having over 1,750 employees in 85 offices. Much of this growth has been accomplished through an acquisition strategy that included nearly 30 acquisitions. 

Ardurra is currently listed as number 86 on ENR's top 500 list. And number 147 on ENR's top 150 global design firms list. Ernesto previously served as the Chief Operating Officer at NV5 and as a Senior Vice President at Atkins and even founded and sold his own engineering firm. He holds a degree in civil engineering from Concordia University, and resides in Boston. Ernesto, thank you so much for joining me today. 

Ernesto Aguilar 01:48

Oh, thank you, Jeff. It's an honor to be here. Appreciate the invite.

Jeff Adams 01:52

Hey, the honor's all mine, Ernesto. Looking forward to talking with you today and letting others be able to just learn more about you and Ardurra and what you guys have been doing.

So Ernesto, before we really get started, tell us how your career began.

Ernesto Aguilar  02:06

You mentioned where I studied, Jeff. I actually grew up in Canada. I know people look at me. My first language, actually in French, if you can believe it, Jeff. Grew up in Montreal, graduated as a structural engineer. Soon as I got graduated, moved all the way to Vancouver, British Columbia, sort of the West Coast of Canada, and worked as a structure engineer, probably for the first four years of my career. Realized quickly that's not what I wanted to do. Switched more to municipal engineering. Worked a couple of jobs over time, decided to start my own business with a partner. And we got it to about 35 people. I had lived in Vancouver 10 years. We decided I had met my wife there, decided to move to San Diego. So, sold my business and moved to San Diego.

Jeff Adams 02:47

Warmer weather there in San Diego. 

Ernesto Aguilar  02:48

Warmer weather. Big, big difference. The idea was stay in San Diego one year. We ended up staying 12. Very hard place to leave, Jeff. Very hard place to leave. And, ended up joining a water firm. Six months after I got there, that firm got acquired by PBS&J. I think a lot of people remember PBS&J.

Ended up being at PBS&J / Atkins for the next 14 years. Lots of roles, a lot of operational kind of sales jobs. When Atkins took over, I decided that I wanted to actually move back to the East Coast. I had my kids in San Diego; we wanted to be closer to family. Atkins then offered me the opportunity to actually run one of the North American operations.

So, they said you could live anywhere. We moved to Boston just to be closer to family. Ended up doing that, and after a while, I had been there a long time, decided to try something new. Joined the firm that was starting up. So, I joined NV5 when they were about 200 employees. And so nobody knew what NV5 was. I joined them.

I think they had no presence in the East Coast. It was all West Coast. And I came in as Chief Operating Officer. And, I think, as many people know, that company exploded over the next four years. I think we did almost 40 acquisitions, I think to 3000 employees. Publicly traded company went through an IPO, and a lot of time, it was time for me to move on; the company had changed. I learned a lot. There's a lot of things I wanted to do differently. And so there was a company that was starting up. It was Ardurra. A colleague of mine from NV5 had actually started the company with PE-backed. I was interested in PE, this was 2017, and the company that is Ardurra had actually started six months before I started talking to the PE guys, and that's how I ended up here.

And, when I joined, the company had about 200 employees, and that's, and I came in as a Chief Operating Officer, did that for a couple of months. And then they offered me to take over the company. 

Jeff Adams 04:42

There was 2017, 2018 timeframe, right?

Ernesto Aguilar  04:45

2018, so the company started in, I probably came about eight, nine months after the company had started, but I had been talking to them six months after that.

So that's how I ended up here. 

Jeff Adams 04:54

Wow, that's phenomenal. I mean, NV5's growth story that you were telling about why you were there and now here at Ardurra going from what 200 to over 1700 employees now, that's, that's pretty impressive growth.   Think since 2017, you guys have acquired somewhere around 26 to 28 firms. But there was a period of time there that you seemed to slow down, albeit you just recently made a pretty big announcement on an acquisition that you've done. But, tell us about this, this little lull, for lack of a better word, that kind of happened in 2023, early 2024. 

Ernesto Aguilar 05:31

So let me go back a little bit, Jeff. So, between 2017 and 2022, we made 23 acquisitions, and then we recapitalized. So, as you know, private equity, every five years or so, they recapitalized the company, had grown tremendously. And we got a new partner. So there was a period there where we actually had to reform the company in many ways put a new foundation.

That's what we've been doing. We did do two acquisitions, I think, 2023. And recently, Jeff, we just announced our most recent acquisition, which is WK Dixon, an iconic 95-year-old company based out of Charlotte, very well known. So we're honored that they decided to emerge with us. So that brought us to about 1,750 employees as of now.  

Jeff Adams 06:15

Yeah. I mean, that is a incredible growth or Ernesto.

How did this WK Dixon deal come about?  

Ernesto Aguilar 06:23

Yeah. Most of the companies we actually find, Jeff, are actually not going through processes like bankers or auctions, if you want to call them. So, WK Dixon, a lot of people were after them. A lot of people calling them, they were actually not for sale.

Someone that we knew introduced us and they said right away, we're not for selling. We said, fine, that's how we started talking, and it took us a year. It took us a year. They decided to go back and forth. They knew they needed to do this eventually. They weren't ready, but it was a good, it was a good fit from both our sides.

And they said, you know what, we weren't looking right now, but we eventually probably had to do this for ownership transition. You guys came along. Let's just do it because we don't want to miss the opportunity. So, really, that's how it developed: a small 50-minute conversation turned out to be a merger between the two firms. 

Jeff Adams 07:12

Well, I suppose Ardurra keeps a pipeline of potential acquisition targets out there at all times that you're able to invest in. 

Ernesto Aguilar 07:22

We do. We probably talk to or look at between 50 and a hundred firms a year. We're very like they should be. We're very selective who's going to be part of the Ardurra team. Just like they should be, too. You know, it's kind of sending your kid to college; pick the right college. And so, yes, we do talk. We're very, very selective. We have certain rules that we use to actually find a firm that fits into our culture, and that's how we do it.  

Jeff Adams 07:46

What does your M&A team look like? The people that get involved in those type of transactions? 

Ernesto Aguilar 08:01

Yeah, so in terms of sourcing, a lot of it comes through me. We have a Chief Strategy Officer. He gets, he goes with me a lot to look at these. And then we have all these previous owners that we have in this company. We have over 40 of them.

They all have connections, they all have networks, they all have companies, they all have people we work with, and that's why many of the companies we have are people that we know already. So that's the sourcing piece. When we actually decide to make a deal, we have a full-time M&A - head of M&A, and his job is to work through the whole deal process due diligence.

So he takes over and grabs our HR, finance, our operations and makes it, works it through. We also have a full-time integration team when they come on board. Integration: We have it into two parts. We have the parts, which is just the systems. I call them finance, HR, that kind of stuff. And then there's the people side.

We actually have a full-time person. Her title is the Engagement Partner. Her job, she actually sits in their office for a while, make sure they're integrated in, understand who to call when they have questions, but that person actually sits in their office at the beginning, make sure that they're comfortable as we're bringing them in.

So that's how we do it.  

Jeff Adams 09:07

You mentioned that you have 50 to 100 firms there in your pipeline at any point in time. You have 40 or so principals from previous acquisitions that have relationships. With so many different opportunities out there. How do you go about prioritizing which ones to go look at first? 

Ernesto Aguilar 09:28

So we have this method. It sounds kind of corny, Jeff. It's called the 3F rule, and it's going to sound corny, but we actually do use it, and actually, it's a way for us to kind of be selective of the firms we look at. So let's go quickly through what the three F's are. So the first one's called fit, and we call it the beer fit. 

And it's really going out. It's more like a date, right? You're going out. Do we actually like these people? 

Jeff Adams 09:50

We use that term all the time with M&A, dating. 

Ernesto Aguilar 09:53

Yeah. So, but it's really, we actually are looking at the people, how do they talk about their staff? Do we actually like work with them? We actually think this guy get along with this person that we have in the company.

It's important because when you get through the deal, you're going to come through obstacles. And if you actually have this relationship. You'll be able to go through so much. You'll be able to talk it through. So, that's probably over 60 percent of the deal. I'll be honest with you: sometimes, we've actually sat with some people. We're saying, yeah, this is not our, this is not our buds. We're going to move on. 

So, second F is future. And we say it's 1 plus 1 equals 30. Are we better off? Do they have stuff we don't have? Do we have stuff they don't have? Are we better off together? We're looking for firms who want to grow, right? So, do we actually have the ability to help them grow? Are they in the same markets we are? Are they in the same geography, or do they fit our strategy? So the fit, the future together has to be way better than we are apart. Otherwise, there's no point. 

Then the third F is the financials. Meaning, when we make a deal, the money does come into play. Are they happy with what they're getting? We don't want resentment when they come in. And at the same time, is we think it's a fair deal for our shareholders and getting value. So all those three have to work. And we're also not looking for fixer-uppers. These companies have to be well-run. There's always the cash in part, Jeff, that's understood, but we're looking for people who actually want to, maybe they don't have the capital to grow. They want to provide opportunities to their employees. These are the firms that we are looking for, that we believe we can help, and we want them to be our partners. 

Jeff Adams 11:34

I like that. The three F rule. So fit, future, and financials. Let's just dig deeper into each of those a little bit. When you talk about fit, you mentioned some of the, I'll call them superficial for lack of a better word, but superficial type things, you know, do we get along with them?

Can we carry on a conversation and things of that nature? How do you dig deeper on culture, and what kind of attributes do you look for to determine whether or not that target firm will be a good fit inside the Ardurra team? 

Ernesto Aguilar 12:08

I'll give you a quick story, Jeff, we actually, this is a couple many years ago. We actually talked to this firm. And the owner, we just didn't have the same personalities, I'll call it, but it's almost like dating. The company was incredible, but the leadership did not fit with us. We can change it. We can change him somewhere, guys. It's really like a date. So we went to the second date.

No, same thing. 

Then I actually went to the third one and realized this is not a fit. So, really, you have to be true to yourself, even though sometimes you're in love with that company. It may not be the right fit. So what are we looking for? You know, we feel the way we run our company. We have very low turnover, Jeff, extremely low turnover in our company. We let the employees, they actually come up with the benefits. They actually come up with all the programs in the company, all the employees are forming this company, so we're looking for companies that treat the employees the same way. I know that everybody says they think of the employee, but we really take it seriously. 

It's an acquisitive company. So, generally, acquisitive companies, the theories, they have a lot of turnover because people get worried, and we like to fight that theory. And so the companies we're looking for are people that have a culture. Our job is not to go change their culture but to take care of their employees and do not have a high turnover rate.

They value the employees and service they provide to their clients. And so we do ask a lot of questions. We do look at what they do. We do talk to their staff below when we're doing the deal to see what they feel about their leadership. So that's kind ofhow we do it. 

Jeff Adams 13:31

Okay, good. When you were talking about the way you go in and look at different people and the first date, the second date, it reminded me of the saying I've heard before: when people show you who they are, believe them.

Ernesto Aguilar 13:46

Yeah.

Jeff Adams 13:47

Right. And I think sometimes we're like, oh no, I, we could change it. We can make it different. We can get caught up in that; I call it the M&A game, the competition of it all. And it can get a little overenthusiastic, but it's good that you're able to sit back and just kind reassess that and think, wait a minute, is this really gonna be a good fit for us or not?

Ernesto Aguilar 14:06

Yeah. I'll tell you another little story, Jeff. It's kind of a little bit to this nature, but it's a little bit funny. But it's actually, uh, you'll find it interesting. So this is not that long ago. There was a firm that really had two owners, some older than need to retire and some younger. And it was pretty obvious that the younger generous did not necessarily want to sell, but they could not buy out the older owners, but they talked to them, and they came back and said, no, we're ready to move forward. So, we went under LOI. Started the deal, started the process, and it was very slow and it became pretty obvious that the younger team that was on board was not on board. They did not necessarily want to sell. So, I called them, and I said, look, I gave you a proposal, I gave you a ring, i.e., the LOI, you accepted my proposal, I've been trying to set a wedding date so we can get married, and you keep putting it off. And this person looked at me. We're not ready. You're not ready to settle down. You still want to be young and have fun. And the person said, you're right, exactly, it's home. But we actually ended the deal because of that. We said, be true to yourself. You're not ready to sell the firm. And they initially thought, is this a, you know, are you trying to talk us into no, no, no, you're not ready. And that's it. We actually shaked hands, stayed friends, and went our separate ways.

So this part, I know dating is used to the cliche quite a bit, but it is like that. It is like that. 

Jeff Adams 15:37

Well, and the way you love things, I'm sure that that firm could potentially be a future seller that you guys acquire, but...

Ernesto Aguilar 15:46

They left a long time love. 

Jeff Adams 15:50

Well, you know, we see that frequently, quite honestly, where there's firms where the majority owner wants to stinking sell doesn't see the opportunity for an internal transaction to take place for various reasons, but then those minority leaders or that second generation to be owners, just are less than enthusiastic when they get involved in it. And, and the buyers realize that. And what would you say to sellers? I think that's one of those things that sellers need to focus on when they're preparing for sale. What's your advice to a seller? 

Ernesto Aguilar 16:23

I think the sellers need to decide what they actually want to be. Meaning, what kind of partner do they want? I would advise them not to go just for the money. This is a many times you're actually. There's going to be your life going forward. You don't want to be stuck with a partner just because they have the highest price. So that's number one. And I actually advise them to ask questions. So what is, what I'm getting into, what's it going to look like? Some firms, I'll use WK Dixon, which are latest one. They actually came down and met with three of our previous companies we acquired. They wanted to know, how did it go? How did the process go? They actually met with each one and asked how was the integration alone. We weren't part of it. And so they did their homework. They wanted to make sure their staff was going to be a good fit for them. We like that. We like that because we think this company is taking this very seriously, wants to make sure it's a good fit for them, too, which will make it a good fit for us.

So do your homework. If you're not ready, don't do it. People think sometimes they have to do it or part of it. You gotta be ready. You should have no regrets. There's the other advice. Don't wait too long. There is a point where some owners wait too long, and it's all about people. Those relations are going to be gone. They don't have a long timeframe. And the value of a company is not going to be the same. So have a plan, right? Don't wait to the very end, have a plan of what you want to do and do it. 

Jeff Adams 17:54

When you look at firms thinking in the past, would you say you've always assessed culture correctly? Have you gotten it right every time? 

Ernesto Aguilar 18:02

There's one or two in my career, Jeff, and...

Jeff Adams 18:05

You don't have to name names.

Ernesto Aguilar 18:06

No names, one or two that, that what happened is the firm, it turned out okay, but the leaders struggled initially of not being the boss, and couldn't make the decisions, but we got around it. Other than that, it's been, we've been very fortunate at this company that it has worked out. So, our Fs have worked, and we've been very careful about it. So, I can see we've been pretty successful in all the firms we've acquired so far. 

Jeff Adams 18:32

Okay. Well, let's talk about the second F. So future, you mentioned that you like for one plus one to equal 30. Yeah, I've always said, let's make it one plus one equals something greater than two. 30 is a big number. 

Ernesto Aguilar 18:45

It is.

Jeff Adams 18:46

How do you guys go about assessing that? What are you looking for? 

Ernesto Aguilar 18:49

So when we actually ask this firm, this is what we tell them. We asked them when they started their companies. Many of these owners had these grandiose plans, and then reality hits. Payroll, accounting, taxes, the back office. They can't do all the stuff they had grandiose plans. So what we tell them is, what were your grandiose plans? Can you put them on a piece of paper? Because now, we might be able to make those grandiose plans come true. So tell us. We do that before. Tell us what is it what you want it to be. And that's part of it. We are not looking for companies that actually do not want to grow. I'll be honest with you. That's just not our DNA. So, we look at their plans, what they have, and then we see can we actually do that? Are they realistic? It's something within our strategy. And if the answer is yes, there's the what, 1 plus 1 equals 30.

The way the company's been growing, this is going to sound weird what I want to say. M&A, to me, is a lazy way of growing. Don't get me wrong, it's worked for us. Organic growth is the way to go. And we've been very good. Our organic growth is double digits, no less than 15 percent. But, M&A is a way to accelerate organic growth. So you got to be careful. We look at these firms, say, can we grow organically if we make some investments? If we bring certain people in, make small acquisitions, tuck ins, are they going to explode? And that's the one plus one equals 30. So, we do assess that before we actually close the deal.

Jeff Adams 20:18

I like that, Ernesto. I mean, you know, it's very appealing thinking as a seller. I would think hearing that, okay, I'm not able to achieve the growth goals and dreams that I had for my firm, but here's a firm, Ardurra, that is willing to acquire me to help me achieve my dreams. 

Ernesto Aguilar 20:41

And Jeff, obviously, they'll get some money out of it.

Jeff Adams 20:44

Right. 

Ernesto Aguilar 20:45

All these entrepreneurs that started their companies, they started for a reason, and most of them is because they had a vision of what they wanted to be, but reality does hit; it's not as easy as you may think. So here it is. Let's accomplish those dreams that you had. And when you have someone that's bought in or a champion, things are going to happen.

To me, this company has been built because of champions. And honestly, Jeff, I made one acquisition in this company that I really was so so about it. But the employees in this company were so much into it. I said, well, we're going to do it because there's so much. And guess what? It's actually tripled.

Jeff Adams 21:21

Wow. 

Ernesto Aguilar 21:22

Why? Because we had champions here in the company that we're going to make it work. So that's the way it works. Organic growth works, just empowering people, having champions. They'll take it. 

Jeff Adams 21:31

What I was about to say, that's what empowering people looks like. Wow, that's amazing. How do you think about the owner?

So you mentioned them a little earlier, but you know, you can have your majority owner, and you mentioned earlier your advice was don't wait too late. Have a plan. How do you deal with owners that are coming in with retirement plans? You know, I want to, I really want to be done in two years, or what does that do?

Ernesto Aguilar 21:59

So Jeff, incredibly, I think all the owners of all the companies who acquired are still here, except for one. 

Jeff Adams 22:06

Wow. 

Ernesto Aguilar 22:07

And that was a planned exit. Many of the ones said they were going to retire. They've decided to stay longer. They're having a lot of fun. Now, incredibly, all these guys can leave. I mean, they've made enough money to be able to leave, but they're here because they love what they're doing. They see it's fun. We do have a fun group. They want to see their employees that they still part of their family. So yeah, we've been very fortunate. Now, there are firms where they tell us upfront, look, this persons going to leave and all that, and we understand that. Like I said, we've been fortunate actually, na, I'm not ready to retire, I'll keep on going. We're fine with that. Knock on wood here, Jeff, they're all still here. All from all 27 companies, you can believe it. 

Jeff Adams 22:43

Yeah. That's quite an accomplishment. 

Ernesto Aguilar 22:45

Yeah.

Jeff Adams 22:46

So your third F, financials. How do you go about assessing their financials? What are you looking for in particular? 

Ernesto Aguilar 22:52

Yeah. So I see you mentioned Jeff we're private equity-backed. So as a private equity-backed company, we have what's called a quality of earnings. So we do have to get a third party, the banks required for us, for loans. We do go through a process where we hire an outside third party to review their financials to make sure that they're straight. How they do their work? We then do a due diligence as well on their business, looking at their contacts, that kind of stuff.

But that's how we look at their financials. We will never, ever acquire a fixer-upper. If you cannot run your own business, then you're never going to be able to do it here. So that's how we assess their financials, see how they're doing, how they run their businesses. And if we feel they know how to do that kind of stuff, we're willing to reinvest in them.

Jeff Adams 23:38

On the quality of earnings, have you ever had a firm that fit check, future check, financials, put on the brakes?

Ernesto Aguilar 23:49

Yes. Twice. Once the company had dropped off, and we started the LOI, but they lost some big jobs. We told them we couldn't move forward if they wanted to renegotiate, which we did. That was the only time, once, They said, yeah, we understand, and we still went forward, but at a different price. The other one is the financials dropped off dramatically; they lost some jobs, and we decided not to move forward. But that's the only times I can think of in my career, Jeff, that we have not moved forward on financials. Sometimes, when you're looking at companies that do not have a process, a process is easier, a bank or advisors help them put financials together so they're more ready, but some of these smaller companies, they may not have all these stuff we need up-front. So we have to work with them to get it there. So those a little bit companies a little bit harder to assess on their financials. But it has happened. It has happened. I'm going to say it hasn't. 

Jeff Adams 24:38

Do you find that as a result of the quality of earnings, you have adjustments to the purchase price or maybe changes to reps and warranties? 

Ernesto Aguilar 24:48

Yeah, we don't do it that way.

Usually, we go in with this is our price. You're always going to be off. A little bit, even if it's down about 10, 15%, we're okay with it, depending on what we can do with it. So we don't retreat. I don't think, uh, the only time I told you once because he had gone dramatically. So, we don't like doing that. There's not a retrade. We're just guaranteed that it's close to what they said it was going to be doing. Reps and warranties, sometimes we may find a contract, Jeff, where they have some risk when we get closer, and we might put something in the contract, say, depending on what happens here, here's how we're going to deal with it.

But other than that, Jeff, we've been very, very good. Like I said, we don't retrade the price is what it is. And we've been going forward with that. 

Jeff Adams 25:30

All right. Great. One last question on financials. Do you ever have challenges with the sellers that have unrealistic financial expectations or valuation expectations?

Ernesto Aguilar 25:43

We haven't moved forward then because there's no first fit, right? The first, the first F. Sure, everybody thinks their company's worth more than it is. I think we do very fair. We explain what it is. We don't want someone coming in with resentment, Jeff. So that's part of the financials at the very end. If they don't feel good about it, then don't do it. Don't do it. And so we will actually not move forward to someone that's actually not feeling good about it. Because they're going to come here, not feeling good about it, what's the point? So that is, yes, there are firms who find to have unrealistic expectations. 

I think the market, though, in the last couple of years, Jeff has a better understanding. I mean, it's out there, everybody's out there. Valuations have gone up. This is a very, very hot market right now. And so, they're still unrealistic, but I think there's a lot more benchmarks out there that people can look at, too.

Jeff Adams 26:38

That's right. Any funny stories that you got that you just want to share? Whether it's just things that happen along the way or mistakes maybe you made in the process. Anything come to mind?

Ernesto Aguilar 26:50

Make plenty of mistakes. Some of them are, I mean, I told you one earlier about the person that we actually explained to them on a date that she said, I get it. I've been through that before, personally, you know. But there are funny stories. Sometimes, you're going through the process. Unfortunately, sometimes you find sad things. We find that maybe an accountant's actually been stealing money from them and throwing the QB. We find out, and we have to tell them, you know, so not funny, but it's actually that person has been with you 20 years, and they've been taking a little bit of money every year. What? So that's happened to me twice, and the QV's found that out. And so it's eye-opening sometimes how people kind of react when we find a lot of stuff that's going on in their business, they didn't know about it. Some good, some bad. So 

Jeff Adams 27:39

That's not exactly what you go into a Q of V expecting to find, right? Fraud going on. 

Ernesto Aguilar 27:48

We had a, I've seen ridiculous, I've seen once a company, a couple of employees, they actually had major expenses on haircuts, and we thought that was weird, and it turns out they had a spreadsheet of percentage of time to spend in the office, and they charged it to the company because that the hair cuts were meant to bring more business in. I've never seen anything like that, Jeff. 

Jeff Adams 28:17

Wow.

Ernesto Aguilar 28:18

They had spreadsheets and a whole bunch of employees to actually do this at an expense. So they had a haircut expense. I don't know if you've ever seen that, Jeff, but I've never seen that. 

Jeff Adams 28:27

I've never seen that either.

Ernesto Aguilar 28:28

Yeah, yeah. 

Jeff Adams 28:29

Wow. So, what advice would you have for buyers out there? Whether they're firms that have tried it before or they're just considering being a buyer for the first time and getting into the M&A game?

Ernesto Aguilar 28:42

You know, one fear I do have right now, Jeff, I think when we started in 2017, there was probably 10 platforms at the most platforms, meaning private equity-backed platforms. What I understand there's over a hundred now. There's over a 100 platforms. And I think it's enticing for a buyer just be to go to a company say we're gonna become a platform into these companies. Oh, that's cool. We're gonna be able to. And then, what happens is the P company expects these companies to grow into acquisitions. And if you've never done acquisitions before in your life, they're going to be on you. They don't understand. I've had a couple of those guys call me. How do you do that? Well, I'm not going to tell you. Our experience is a little bit different. So be careful what it sounds good. If you actually can do it.

I think there's a lot of one-and-dones on the P. I think you're going to see a lot of swallowing happening here. There's some firms have been around for years, haven't been able to make an acquisition. Or what happens is, when a firm comes out through a process, they all jump, everybody jumps on it. So be careful what sounds enticing and be real. Can you actually be a platform that's going to compete against others? So that to me is one advice I've been seeing from some saying you're not a platform, but I know it sounds cruel. Just be careful what you're getting into. So that's right now, in the private equity side, I would say, be careful what you're getting into, what you're selling into.

Jeff Adams 30:07

Yeah, that's a great word there, Ernesto. It makes me think about when I was a kid, being out on the basketball floor, when you're picking teams. Got a captain out there picking. It's always fun to be the first one chosen, right? It makes you feel special. That's kind of what this platform concept is. But, there's a lot of back-end reality to that, that if you haven't already been doing all those things that's required to successfully grow as a firm, then it's going to be a rough ride for you as the platform. Alternatively, being an add-on or a bolt-on to a platform firm, totally different, right?

You already have that leadership team that know how when it comes to rapid growth. And, like you mentioned, your whole team that you have internally can help you through that process. So you can just go on in on that. Add your relationship capital to the fire, and really, that'd be additional fuel. So. 

Ernesto Aguilar 31:04

And be part of the team that you're going to grow it too. It's not like it's just going to be kind of sitting there. You're actually part of a team that's growing. I just say, just be careful that you know what you're getting into the expectations from these private equity companies. I just find there's way, in my opinion, way too many right now. And so it'll be interesting what happens here in the next couple of years. There can only be so many, and there's a point where one's going to start eating the others, and I think that's just starting to happen already. That's just starting to happen. 

Jeff Adams 31:31

Yeah. So I want to switch gears real quickly here as we're getting toward the end, but I want to ask you about, I believe I can't remember if you called it relationship capital person, your integration person.

You got this key integration person. Tell me what was the title of that? 

Ernesto Aguilar 31:48

Employee Engagement Partner.

Jeff Adams 31:49

Employee Engagement Partner. So, tell me a little bit, when does the Employee Engagement Partner come into the M&A process first of all? 

Ernesto Aguilar 31:59

So when we're actually going through the diligence, we actually start looking at each employee before we close, how they're going to be, cause we have to see if we need to gross up their salaries. So one thing we do, Jeff, is no employee will be worse off. So, as an example, let's say our benefits are better, but that in the company pays more of the benefits of their portion. We actually rose up the salaries. Okay. So even though they're going to be the same or better, not worse, the same or better. So, as we start actually giving that message, that person starts getting involved. When we actually started doing the roadshow, we started to reason ourselves that person takes a big lead. And I said at the end, she's going to be in that staying there. So it happens before it close, Jeff. When we actually go to introduce the company, she's involved in and talks about the people side. Again, all this happens before we even close a deal to make sure we're getting into. And so they understand they have someone they can rely on to ask questions during the process. 

Jeff Adams 32:57

Yeah, I run into buyers from time to time that I think they really struggle. Struggle might be a wrong word. You get focused on the deal, on the transaction. 

Ernesto Aguilar 33:08

Yeah. 

Jeff Adams 33:08

Forget there's this day-one integration that you need to already have figured out before day one gets here. Right. And, I think your employment engagement team can sit here and identify what the challenges, the hurdles, the concerns are that the employees coming in, I might have an address those early on.

Ernesto Aguilar 33:28

My assumption, Jeff, when people hear the word we've been acquired, they hear nothing else except in their mind is my job on the line. 

Jeff Adams 33:39

Mm hmm. 

Ernesto Aguilar 33:40

That is my assumption. We go in with that assumption, and it's normal. You're touching their livelihood. They worry about it. They hear bad stories, big bad private equity, big bad acquisition. So what we say is, look, you don't know me from Adam, you don't trust your leadership. But don't go do something irrational; wait it out to see what happens. Right. You're going to get a lot of calls from recruiters telling you, oh, this is bad and all that. Wait it out. Just you'll see that not a lot of things will change. We never say nothing's going to change because that's not true. Things will change a little bit. And so wait it out. And this person here is going to be able to help you. And then you can make an informed decision. And so that's the way we approach it. We just tell them. It's normal. Give us a chance. But we don't try to change their mind. We're just saying give it time. And that's how we do it. And then she's there to support them if they have questions. 

Jeff Adams 34:31

Well, Ernesto, I think there's a lot people have heard here today that already answers this question. But I'm going to ask you this question and let you as the CEO tell us. Why or Ardurra? 

Ernesto Aguilar 34:46

All right, Jeff, I tell people I don't have a sales pitch, and I'll tell you why I say that. Because this is, again, it's back to dating. I don't want to force one to marry me because I sound good. We're not the only people out there, Jeff. I think you need to find your, obviously I have a biased view of our company. I'm not going to make the sales pitch for Ardurra. I think the sales pitch on selling the company is that be real when the timing is there. Don't wait too long. Make a decision. Not about money. Find your right partner. Your right partner, it could be a publicly traded company. It could be a private equity company. The decision might be that you want to stay on your own because you have a succession plan. But have a plan. Do not just wait to the last minute. That's my sales pitch on how you should progress. And pick the right partner. 

Jeff Adams 35:40

Well, Ernesto, I really appreciate it. You got a lot of wisdom in your words that you gave us today and your experiences that you're going through. Thank you so much for joining me today. 

Ernesto Aguilar 35:51

A pleasure, Jeff. Thank you very much. Appreciate your time. 

Jeff Adams 35:55

And thank you for tuning in to AEC Unscripted, the Mergers and Acquisition Edition.

I'm Jeff Adams, and it's been a pleasure guiding you through M&A. From the perspective of an experienced private equity back strategic buyer in the AEC industry. Please remember to subscribe and leave us a review wherever you get your podcast. And until next time, keep pushing forward.