Architects of change are drawing little interest.

• Author: Williams, C.C.
• Position: Brief Article

As a manager of architectural, engineering and planning firms, Inc. oversees companies that design hospitals, courthouses, jails, schools, hotels and office buildings for the likes of Duke University Medical Center and Bank of America Corp.

It also has an unusual blueprint for building a nationwide empire in the fragmented, $75 billion AEP industry, where $1 million companies are the rule. By some estimates, there are about 80,000 AEP companies nationwide. "There is no player in our market that is the equivalent of an Andersen Consulting or an Ernst & Young," CEO Joseph Harris says. "What I'd like to be is a catalyst for having that happen."

HLM moved from Iowa City, Iowa, in 1997 to gain access to an airport hub and get closer to its East Coast operations. It has built a $38 million business by buying AEP firms without really buying them. The company consists of HLM, a 30-person management outfit in Charlotte, and nine "managed firms." Altogether, there are 350 employees. HLM doesn't legally own the managed firms. Instead, it buys 40-year management agreements that give it ultimate control and 99% of the affiliated companies' net income.

That keeps local firms in compliance with state licensing rules while eliminating duplicate management tasks, cutting costs and giving local firms access to nationwide resources. "We're the only public architectural company trying to build this type of business," Harris says.

And it probably will be for a while. "Wall Street isn't in love with this business," says Mark Zweig of Natich, Mass.-based Zweig, White & Associates, an industry consulting group. The companies in it are small, and revenues usually dip in the winter. "They don't own technology or products, and a lot of the success is tied to an individual seller," Zweig says. "It's not a replicable business. That's not what investors like to put their money in."

Since debuting at $6 in June 1998 and reaching its all-time high of $6.13 on its second day, HLM's stock has dropped more than 50%. In early January, it traded for just $3 -- below its book value of $3.92. The sluggish stock isn't helping HLM's own corporate construction project, although management claims it's not hurting it, either.

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