The fluctuation in the world economy and the impact of multiple recessions over the past twenty years have had a direct impact on the industry. The trends indicate that as the world economy enters a period of recession, the focus for more environmental protection softens; consequently, services and commodities tied to environmental monitoring and reporting are also negatively affected.
Another dominating factor in the evolving landscape of the environmental consulting industry is changes in environmental regulations. The regulations have become much more defined in all provinces in Canada resulting in more environmental investigation, reporting, and compliance. Therefore, more environmental professionals are required to stay current to deliver accurate and up-to-date service.
During the past two decades the industry has seen both positive growth due to the economic boom and negative growth during the recession of 2008-2010. There has been a steady comeback since the recession, however one factor has been consistent over the past twenty years: consolidation. Mergers and acquisitions (M&A) activity has resulted in larger service providers, fewer mid-sized companies, and more international players in the landscape.
Initially, major U.S. environmental consulting companies acquired many large to mid-sized Canadian companies, and, during the past 10 years European and Australian companies have entered the market through acquisitions of Canadian companies. The economic drivers and changing environmental regulations combined with the industry’s clients’ push for rigorous supply chain management and globalization of the services have created more challenges for the leaders of the industry.
The globalization drive to provide consulting services in multiple geographic locations combined with supply chain management drive by the industry’s clients has resulted in fewer service providers. This movement has left many small-to-mid-sized Canadian companies competing against larger and multi-national consulting companies. This trend will continue the pressure for more consolidation.
Consulting companies’ aging owners/shareholders and their desire to capitalize on their long-term investments is another aspect of the industry consolidation. The baby boomer effect, attractive multiples offered by the acquiring companies, inability to compete on a larger scale, and simply the economics of positioning the companies for sale have fueled the mergers and acquisitions, and consolidations resulting in another aspect to changes in the industry landscape over the past twenty years.
As industry consolidation continues, new start-up companies are being formed, many of which are due to the employees of the acquired companies leaving and forming their own environmental consulting companies. This may be due to lack of interest in working for large corporations, shortage or limitation of career advancement opportunities due to mergers, inability to participate in the windfall of the sale gained by the owners, and expiry of the owners’/shareholders’ restrictions designed to retain the senior staff as part of the sales agreement. This evolution of smaller and more boutique companies popping up post-M&As will continue to provide clients with options to use more flexible and more competitive pricing to get their work done by the consulting industry.
The industry consolidation and the M&A trends combined with clients’ supply chain management programs demanding for cheaper delivery mechanism and services, have resulted in commoditization of some of the services offered by the industry. These changing dynamics and landscape have created a significant challenge for the leaders of the industry to sustain a profitable operation while facing rigorous competition, aging and retiring senior staff, and meeting the needs of the new generation of employees with different expectations than the industry has focused on in past decades.
These challenges demand a more consultative approach by the leaders of the industry to address the cultural and employee makeup changes, clients’ demands for cheaper services, impact of technology on the industry, continued M&A activities, and managing corporate exposure in a changing landscape.
These issues will be discussed at the upcoming Canadian Environmental & Engineering Executives Conference, being held from September 19th to 21st at the Terminal City Club in Vancouver. There will be ample opportunity for executives to network and share their common interests during the conference as well. For more information, visit www.ce3c.ca.
This article was written by Faramarz Bogzaran, the managing partner at F&M Management Ltd.