Bundling Businesses To Build New Schools

The crunch in corporate spending on new construction is driving allied industries such as design and architecture on a hunt for new growth opportunities. These days, that means pharmaceuticals, higher education and K-12 schools. And to capture business in these markets, architectural firms are beginning

The first move came last month when Fletcher-Thompson of Shelton, Connecticut, acquired Edison's Rothe-JohnsonFantacone. This will allow RJF Fletcher Thompson Architecture, as the state firm now calls itself, to take advantage of Fletcher's school construction expertise.

For Fletcher-Thompson, the key attraction is RJF's relationships and expertise in pharmaceutical and health care work, as well as in higher education and correctional facilities. RJF is working on several projects for Robert Wood Johnson University Hospital in New Brunswick and recently designed the Cancer Institute of New Jersey for the hospital.

It has been two years since the New Jersey Economic Development Authority launched its 10-year, $8.6 billion schools construction program. RJF, which derives about onethird of its revenue from the corporate sector, found itself illprepared to exploit that opportunity. So last year it went looking for a partner with expertise in schools construction. The trail led to Fletcher-Thompson, a 93-year-old firm that has designed more than $1 billion worth of school projects.

"It's the first consolidation move I've seen, but it could become a trend," says Matthew Jarmel, principal at Jarmel Kizel, an architectural firm in Livingston which is also pursuing school projects.

Thanks to the deal with FletcherThompson, RJF has been shortlisted for K-12 projects valued at about $150 million. RJF is currently designing a $20 million, 800-student school building for the Newark Public Schools and is working on projects for community colleges in Cumberland, Warren, Morris and Ocean counties.

Edward Rothe, RJF's managing principal, calls the K-12 schools program the largest construction opportunity in the state since the Atlantic City casino boom two decades ago. "We've been told there's going to be about $800 million worth of projects in 2003, another $1.2 billion in 2004 and $1.1 billion in 2005," Rothe says. "I am not seeing any corporate enthusiasm, which is why we are focusing on the public sector."

Princeton-based Hillier International, the state's largest architectural firm, has 60 architects in its Newark office focusing exclusively on the K-12 market. School construction accounts for onequarter of Hillier's revenue, which totaled $80 million last year.

"There's no question that the trend is for larger firms to become bigger and for midsized firms to get squeezed," says Hillier CEO David Erik Chase.

That trend is paying dividends for RJF, which has grown from a firm with $4.5 million in revenue before the merger with Fletcher-Thompson to one that is part of a $22 million outfit. Rothe now has the combined strength of 150 design and construction professionals to draw upon.

The sale to Fletcher-Thompson also enabled Rothe to cash in on some of what he has built at RJF since founding the firm 29 years ago. Under terms of the buyout, Rothe has a stake in the parent firm and splits RJF equity capital with three RJF partners and six principals of Fletcher-Thompson.