Industry Description
The architects industry in the U.S. comprises professionals who develop plans and designs for various structures such as residential homes, institutional facilities, recreational complexes, commercial centers, and industrial buildings (NAICS 54131). They apply design principles, construction methods, building codes, zoning laws, and material properties to create functional built environments.
The following are some basic characteristics of the architects industry:
- Architects industry has a combined revenue of $46.4 billion, with a growth rate of 1.5% in 2019-2024
- There are approximately 38,600 businesses as of 2024
- The architects industry employs approximately 187,600 people
Industry Trends
The architects industry is highly fragmented and has low levels of market share concentration, with no operators having a significant amount of industry revenue in 2019. The largest players employ more than 100 workers, while small players employ fewer than 5 workers. Some key external factors that influence this industry are (i) sustainable practices, (ii) technological advances, and (iii) urbanization. Each of these is described in further detail below.
The industry is seeing an increasing focus on sustainability, which is growing demand for sustainable practices. The green building materials sector is valued at $26.6 billion and is expected to grow at a rate of 10.4% each year, up to the year 2030. This increase in green building materials supplies has put an emphasis on sustainability. Now architects are incorporating sustainable practices such as energy efficient buildings and renewable products into their designs.
Advancements in technology have changed how architects conceptualize, carry out, and execute their projects. Architects reap the highest value from Building Information Modeling software which has improved efficiency, productivity, and collaboration. Additionally, virtual reality and augmented reality tools help architects create designs that give clients a better sense of their projects. These technological advances contribute positively to the bottom line of companies in this industry.
With populations being more concentrated in urban centers there is demand for residential and commercial properties. About 80% of the total population resides in urban areas, which was an increase of 6.4% from 10 years ago and is projected to increase again in the next 10 years. Residential growth, commercialization and infrastructure advancement in these areas will increase the demand for architects. This means architects are central to the development of these built environments.
The architects industry in the U.S. has been influenced by external factors such as sustainable practices, technological advances, and urbanization. The integration of sustainable practices coupled with technological advances positions companies to capture industry share. As urbanization continues companies that can balance sustainability with technology enabled efficiency will likely experience growth.
Key Performance Metrics
In evaluating the architects industry, the following metrics can provide useful information in comparing a subject company to guideline companies and transactions.
- Bid-win ratio
- Change order frequency
- Client diversification
- Project duration
- Project size
- Repeat business percentage
Industry Organizations & Publications
The following organizations publish useful information:
- American Institute of Architects (AIA)
- Association of Licensed Architects (ALA)
- National Council of Architectural Registration Boards (NCARB)
- Society of American Registered Architects (SARA)
Guideline Information: Private Purchase Transactions
Most architects companies are privately owned. While there are publicly traded companies, data regarding the sale of 100% of closely held architects companies is generally the best source of information to appraise a subject company.
The following are typical appraisal multiples from sale of architects companies:
- Revenue multiples between 0.2 and 1.4 times
- Gross Profit multiples between 0.3 and 1.7 times
- EBITDA multiples between 1.3 and 8.9 times
In selecting guideline transactions, it is of critical importance to select transactions that are similar to the subject company. Unique factors for any subject company must be considered to yield credible results. Additionally, industry economic conditions also vary over time, which must also be considered.
Guideline Information: Publicly Traded Companies
Most architects companies are privately owned; however, there are a few that are publicly traded, meaning it is possible to compare a subject company based on industry metrics and appraise using industry multiples. However, as with the guideline transactions described above, it is of critical importance to select publicly traded companies that are similar to the subject company. Also be aware that multiples of certain publicly traded companies may not accurately reflect a subject company.
The largest publicly traded U.S. architects company is:
- AECOM (ACM) – $12.9 billion market capitalization
The Price-to-Earnings (P/E) ratio of this company is 27.7 times.
Appraisal Rules of Thumb
Please note you should never use a Rule of Thumb in place of a professional appraisal. You will never see a competent professional appraiser do their work using a Rule of Thumb. The professional standards that govern professional appraisal practice, which all professional appraisers should follow, specifically prohibit the use of Rules of Thumb.
Architects companies are businesses sold based on sound economics. These economic considerations can be measured using the key performance indicators described above, but such economics cannot be accurately summarized in these simple formulae.