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THE TOP 600 SPECIALTY CONTRACTORS
Uncertainties Loom over Hot Market
By Gary J. Tulacz
For large specialty contractors, 2004 was a very good year and 2005 will likely continue that prosperity. But many industry executives worry that this might just be good news piled on top of bad news. New trends may yet expose old market uncertainties.

Most major contractors seem to believe the market will continue to be strong, fueled by the passage of federal transportation and energy funding bills and with looming hurricane recovery funding. But they remain cautious over materials prices, a possibly overbuilt residential market and recent hurricanes’ impact on the overall economy.

The complete 2005 Top 600 Specialty Contractors list with revenue and market data is free to ENR subscribers but can also be purchased for only $14.95. Click here for more information.

Click below to view firm rankings for:
Top 600 Specialty Contractors

For ENR’s Top 600 Specialty Contractors, 2004 was a major advance in volume. As a group, the Top 600 generated $51.41 billion in revenue. This marked a 9.7% rise for the group over last year’s mark of $46.87 billion, the beginning of a rebound from the doldrums the industry experienced in the wake of 9/11, the dot-com meltdown and the general building sag in 2001. However, 2004’s total still falls short of the $53.94 billion reported by the Top 600 in 2001 and the record $54.26 billion in 2000.

Many specialty contractors are finding 2005 to be strong, as recent events encourage further growth. "The market has looked quite promising and that was before taking into account the work coming from Hurricane Katrina," says Frank T. MacInnis, chairman of Emcor Group. He believes the public sector will continue to be strong but also sees release this year of a large pent-up private sector demand.

Ironically, Emcor has been reducing its presence in some strong public markets, says MacInnis. The firm moved into public work during the recession of 2002 but has had mixed results because of tough competition and tight margins. "We have learned to be disciplined in the selection of the projects we take," he says. Despite the market’s size, Emcor has not been successful in the K-12 school construction market "so we’ve stopped working in it," MacInnis adds.

In 2004, many specialty contractors made significant moves to strengthen their competitiveness. Such steps seemed natural in some cases, such as Colonial Mechanical’s merger with Webb Technologies that effectively doubled the size of the firm. "Colonial and Webb both were owned by FirstEnergy," notes Mitchell Haddon, CEO of ColonialWebb. When FirstEnergy decided to depart the contracting market in 2002, the Webb family acquired both firms. Their ultimate merger two years later was straightforward. "We managed to do it without a lot of the pain experienced by mergers of strangers," he says.

(Photo by Guy Lawrence for ENR of Relief Sculpture in Rockefeller Center)

Other mergers happened more quickly, such as M.C. Dean’s acquisition of Aneco Electrical Construction, Clearwater, Fla. "We were looking at a project in northern Virginia that they were working on and were really impressed," says Bill Dean, CEO of M.C. Dean. Aneco had experienced some financial problems and was interested in a deal. "It only took us about three weeks to complete the due diligence," he says, adding that Aneco now provides its new parent with a statewide presence in Florida.

Rolled Up

The past year may also have closed the curtain on the roll-up trend among specialty contractors. One of the largest remaining roll-ups, Integrated Electrical Services, announced on Oct. 28, 2004, that it had begun to sell off several businesses with a total of $289 million in revenue that it identified as "underperforming." By Sept. 9, Integrated had sold 13 units and closed two others for a total of nearly $50 million in cash. They represent combined net revenue of $244.8 million and operating income of $9 million.

THE 2005 TOP 600 AT A GLANCE
VOLUME      
 
2004 $ MIL.
2003 $ MIL.
% CHANGE
REVENUE
51,411.1
46,871.5
+9.7
NEW CONTRACTS
47,122.6
41,870.1
+12.6
PROFITABILITY      
 
FIRMS REPORTING 
NET OPERATING
AVERAGE %
MARGINS OF
 
PROFIT
LOSS
PROFIT
LOSS
FIRMS REPORTING
519
54
5.3
3.1
MARKET ANALYSIS  
TYPE OF WORK
REVENUE ($MIL.)
% OF TOTAL
BUILDING
29,346.7
57.1
HAZARDOUS WASTE
386.7
0.8
INDUSTRIAL
2,461.2
4.8
MANUFACTURING
4,398.0
8.5
OTHER
888.9
1.7
PETROLEUM
1,473.5
2.9
POWER
4,261.6
8.3
SEWER/ WASTE
1,466.4
2.9
TELECOMMUNICATIONS
2,418.7
4.7
TRANSPORTATION
3,937.0
7.7
WATER
372.4
0.7
SPECIALTIES   
 
REVENUE ($MIL.)
% OF TOTAL
ASBESTOS ABATEMENT
623.1
1.2
CONCRETE
3,230.4
6.3
DEMOLITION/WRECKING
991.1
1.9
ELECTRICAL
14,775.2
28.7
EXCAVATION/FOUNDATION
1,668.6
3.2
GLAZING/CURTAIN WALL
925.9
1.8
MASONRY
737.7
1.4
MECHANICAL
10,956.7
21.3
PAINTING 673.7 1.3
ROOFING 1,238.6 2.4
SHEET METAL 854.4 1.7
STEEL ERECTION 806.9 1.6
UTILITY 2,592.1 5.0
WALL
2,453.3
4.8
OTHER
8,883.4
17.3
*Ranked according to revenue from specialTy, prime or subcontracting obtained in 2004

The most dramatic roll-up exit was the collapse of generalRoofing. The firm rolled up roofers around the country to become the nation’s largest roofing contractor in the early 2000s. But cracks in the empire began to show, leading to generalRoofing’s Chapter 11 filing in 2004. In June, Tecta America acquired nine of generalRoofing’s ongoing offices.

"We looked into buying them last year before the firm went into Chapter 11, but decided we weren’t prepared to take on that kind of financial burden," says Mark Santacrose, Tecta CEO. "They had shut down most of their operations. It’s a credit to their people in the remaining offices that they were still doing business despite the financial difficulties."

(Photo by Michael Goodman for ENR of Panel Installation at 7 World Trade Center, NYC)

The buoyant single- and multi-family residential market has powered many specialty contractors. But others are hearing the background drumbeat of an overbuilt market, along with slowly rising interest rates. No one seems to be ready to hit the panic button yet, however. "I don’t see the kind of market conditions now that we saw back in the early 1990s during the real estate bust," says Dean. He believes the end of the residential boom will lead to a gradual dropoff in work, rather than to a spectacular bust as in 1991. "It will be a much softer landing this time," says Dean.

Another market uncertainty is the impact of hurricanes Katrina and Rita. "It will be real interesting to see what happens," says Dean. "People are talking about $100 billion to $200 billion in damages and a lot of that will be spent on new construction and reconstruction. That kind of cash infusion into the industry will have a widespread impact."

In the long term, there could be huge opportunities. "We had just finished the Hard Rock Casino in Mississippi, which was scheduled to open the day before Katrina struck," says Dan Baker, CEO of Baker Concrete. He says that since casinos on the Gulf Coast are considered critical to Mississippi’s economy, there is an intense lobbying effort to move them from offshore to land-based. "That’s an awful lot of concrete if they do allow on-shore casinos," Baker says.

One change wrought by Katrina and other hurricanes over the past few years is a rethinking of the type of buildings to replace those destroyed. "All the stick houses on the Gulf were simply blown away," says Michael L. Jones, CEO of...

 

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