Consolidation Slows Down, Work Doesn't
Last year's headlines in this space announced: Consolidation Shuffles The Deck - Acquisitions are making it hard to tell who's who among the industry players. The accompanying article found it striking how many new names appeared on our Pipe Trades Giants list, and how many had disappeared, owing to the vigorous consolidation activities taking place in 1998-99.
It's yesteryear's news, friends. If you compare this year's list with 1999's, you'll find a little jockeying up and down the ranks but few remarkable changes. One exception is the sudden appearance of Encompass Services Corp. in our top 10, representing a merger earlier this year of former giants Building One Services Corp. (No. 4 last year) and Group Maintenance America Corp. (No. 6). Other mergers, and even emergences, may yet follow, but it's pretty clear that the consolidation movement has slowed down in the mechanical contracting industry. Insofar as the IPO ambitions of would-be consolidators are concerned, it's pretty much hit a wall.
After several years of bingeing on IPOs, Wall Street investors have woken up with a severe hangover during the last year. Companies like BlueDot. and AMPAM that formed with an avowed interest in going public sooner or later, have pushed later into the realm of indefinite. Other consolidated entities that were about to emerge turned out to be stillborn.
Even more telling, utility companies Conectiv and Kansas City Power & Light have made public their intentions to unload their PHC services subsidiaries, Conectiv Services and R.S. Andrews Enterprises, respectively. Continuing losses have made these formerly appealing businesses unpalatable to public stockholders.
What's more, although consolidated public companies, such as Emcor, Encompass Services and Comfort Systems, continue to generate impressive sales revenues, their money making ability is impressing nobody. Least of all Wall Street, where investors are reacting with gaping yawns to those company stocks. None of the public giants managed even a 2 percent net profit margin in reporting first quarter results, and while this is written a few days before second quarter financials get revealed, it would be a big surprise to find any dramatic surge upward in profit dollars.
Voices within the industry are starting to ask whether there is something intrinsic to the mechanical contracting business that makes size more a burden than a virtue. Going back decades, one can see an unrelenting correlation between the biggest firms and ultimate failure.
The telling sign, of course, will occur if and when this incredible American economy finally hits the skids anytime soon. The Federal Reserve is doing its best to engineer a soft landing, but that's about as complicated as trying to land a 747 on an aircraft carrier.
So far, though, a slowdown seems the last thing on people's minds. In fact, just the other day Emcor Group announced that its future contract awards increased to a record $2 billion, up from around $1.8 billion at this time a year ago. Its fortunes coincide with my own informal samplings of industry skinny. Every mechanical contractor I meet gets queried about his company's backlog, and to date I've not found one indicating concern.
May the force continue to be with us, for as far in the future as we care to go.
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