Contractor Consolidation

March 1, 2003
Merger mania hits the electrical contracting business, as 27 contractors merge into three huge, publicly held companies.The electrical contractor market

Merger mania hits the electrical contracting business, as 27 contractors merge into three huge, publicly held companies.

The electrical contractor market has seen a sudden flurry of consolidation activity, leaving electrical manufacturers and distributors concerned about the trend's future implications.

Two new corporations formed by merging electrical contracting firms made initial public stock offerings in late January, and another went public in mid-February. These new corporations are made up of non-competing electrical contractors that are joining forces to reduce overhead and win more national contracts. None of the new firms has stated publicly any plan to centralize purchasing, but that's obviously a key concern of their existing suppliers.

The mergers highlight the possibility of a trend toward national electrical contracting chains. "Corporate contracting could be a trend," says John Grau, vice president of the National Electrical Contractors Association (NECA), Washington, D.C. "Every electrical contractor is for sale if it's the right deal."

The three mergers created three huge, nationwide electrical contracting corporations: Integrated Electrical Services, Inc. (IES), Houston, Texas; Consolidation Capital, Inc., Washington, D.C.; and Quanta Electrical Services, Inc., also of Houston. All three firms rank among the 10 largest electrical contractors in the U.S., in terms of revenues, and count among a mere handful of contractors that are publicly held. The merger makes IES the third largest electrical contractor in the country. Consolidation Capital becomes the fifth largest.

IES, the first of the three to go public, took shape as a national electrical contracting corporation in June 1997 and has acquired, in separate transactions, 15 electrical contractors from across the U.S., plus a related electric supply company, Key Electrical Supply, Inc., Houston. IES' 16 companies reported combined annual revenues of $312.7 million for the 1997 fiscal year.

Meanwhile, Consolidation Capital Corp. announced in late January that it has signed letters of intent to acquire seven electrical service firms, including three that rank in the top 50 in the U.S., according to ENR magazine. The contractors had combined revenues of $276.9 million for 1997.

The seven companies that Consolidation Capital will acquire are Tri-City Electrical, Altamonte Springs, Fla.; Wilson Electric, Phoenix, Ariz.; Town & Country Electric, Appleton, Wis.; Riviera Electric, Denver, Colo.; Garfield Electric and Indecon, Cincinnati, Ohio; and SKC Electric, Kansas City, Mo. Jonathan Ledecky has been named chairman and chief executive officer.

"The acquisition of these companies establishes a large, broad-based electrical services organization that will position us to grow and better address the needs of national facilities managers," says Ledecky.

Ledecky previously launched a similar venture in the office supply market, where he acquired more than 215 companies to form U.S. Office Products Co., Washington, D.C., increasing revenues from $134 million to $3.6 billion. At the recent annual meeting of the National Association of Wholesaler-Distributors (NAW), Ledecky sat on a panel that discussed the surge of Wall Street interest in the distribution industry and the potential for similar firms in fragmented distribution markets--such as the electrical business--where many smaller players do most of the business.

The 16 companies that make up IES are Houston-Stafford Electric, Inc., and Stark Investments, Inc., a related electrical supply company, as well as BW Consolidation, Inc., including Bexar Electric, and Muth Electric, Inc., all of Houston; Mills Electrical Contractors, Inc., General Partner, Inc., and Summit Electric of Texas, Inc., all of Dallas; Daniel Electrical Contractors, Inc. and Daniel Electrical of Treasure Coast, Inc., Miami, Fla.; Amber Electric, Inc., Orlando, Fla.; Charles P. Bagby Co., Inc., Birmingham, Ala.; Thurman & O'Connell Corp., Louisville, Ky.; Rodgers Electric Company, Inc.; Hatfield Electric, Inc., Scottsdale, Ariz.; Ace Electric, Inc., Valdosta, Ga.; Reynolds Electric Corp., Phoenix; and Thomas Popp & Co., Cincinnati. Jon Pollock, principal of Bexar Electric, was named president of IES.

Unlike the companies that make up Consolidation Capital and IES, the four contractors that have merged to form Quanta Service are all union shops. Quanta also differs from the other two by comprising overhead transmission specialists. John Colson, chief executive officer of PAR Electrical Contractors, Inc., Kansas City, Mo., was named CEO of Quanta Service.

Quanta Service is made up of PAR Electrical Contractors, Inc., North Kansas City, Mo.; Union Power Construction Co., Englewood, Colo.; Trans Tech Electric, Inc., South Bend, Ind.; and Potelco, Inc., Seattle, Wash. The combined annual revenues of these four firms exceeds $130 million.

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