Top 50 Contractors Face Tough Times

Sept. 12, 2003
Revenues plunged for more than half of the electrical contractors on EC&M’s fourth annual Top 50 Electrical Contractors listing.

Revenues plunged for more than half of the electrical contractors on EC&M’s fourth annual Top 50 Electrical Contractors listing (See table on page 4). The firms averaged an 8 percent drop in sales from 2001 to 2002, compared with a 7.25 percent increase experienced by the Top 50 from 2000 to 2001 and a 27.7 percent increase from 1999 to 2000.

The marketplace can change quickly in the construction business. In the late ’90s electrical construction companies had more work than they could handle and faced a severe skilled labor shortage. Now, more electrical contracting firms are competing for fewer jobs, leading to low margins and increased unemployment.

“There are less jobs to bid, and the competition is starving for work,” said Louis Kinman II, vice president of operations for Kansas City, Mo.-based Capital Electric Construction Co. Inc., an electrical contractor that specializes in substation, transmission line, distribution, street lighting, and traffic signal work. “We are finding that in order to keep people working right now, we’re having to look at smaller projects, which means more competition.”

Wayne Griffin, president of Holliston, Mass.-based Wayne J. Griffin Electric Inc., attributed the sharp drop in many contractors’ sales to the overbuilding of hotels, high-tech facilities, and speculative office buildings during the construction boom. High-profile, high-dollar project opportunities are now in short supply, and many electrical contractors are returning to their bread-and-butter markets like education, residential and health care.

With more contractors expanding into new market segments and less projects on the horizon, the number of bidders has dramatically increased on individual projects. More than half of the respondents to this year’s survey named competitive bidding as their top challenge for the coming year, followed closely by the slow economy. Companies less experienced in certain market segments often submit low bids and then lack the expertise or the manpower to successfully complete the job.

Electrical consolidators unravel in down economy. Two of the nation’s largest electrical consolidators — Encompass Services Corp. and Bracknell Corp. — are noticeably absent from this year’s list.

Encompass, which ranked second on last year’s listing with $1.6 billion in revenues, filed for Chapter 11 bankruptcy protection on Oct. 14, 2002. A few months later, it sold 37 of its more than 300 operating units for about $163 million. The businesses were either sold back to the original owners, acquired by Integrated Electrical Services, or liquidated. A financial sponsor now owns the residential part of the company, which was the best performing group prior to the bankruptcy. Residential Services Group Inc. purchased the assets for about $40 million plus certain related liabilities.

Other electrical contracting firms have faced similar financial problems. Bracknell Corp., a Minneapolis-based company with 2001 sales of $377 million, was declared in default of credit agreements in 2001.

All of its directors and officers then resigned their positions, and Bracknell’s subsidiary, Adesta Communications, filed for bankruptcy protection.

Acquisition activity has also slowed down in other sectors. Comfort Systems U.S.A., which was once a large rollup, divested a large portion of its assets to EMCOR Group. EMCOR, which ranks second on EC&M’s listing with 2002 sales of $1.19 billion, is now focusing more on its facilities business than buying additional mechanical or electrical contracting firms.

Weathering the storm. While some of the top electrical contracting consolidators have crumbled under financial burdens, several electrical contractors on EC&M’s listing have survived the tumultuous times in the construction industry. Patrick Power Corp. is now moving into its third generation of leadership after 43 years in the business. Jim Driscoll, president of the Fort Lauderdale, Fla.-based company, said that if an electrical contracting firm wants to stay afloat, it needs to keep up with technology, diversify its market segments, and branch out to new locations in the United States and overseas. Patrick Power, which is one of the top five steel-mill contractors in the United States, recently completed a $160 million project in Saudi Arabia and a $20 million, 1,400-room hotel in the Bahamas. The company started to pursue offshore construction jobs when its three prime markets — petrochemical, steel work, and power plants — dried up.

To weather the storm, contractors need to develop and maintain a relationship with their clients, cultivate the development of their employees, pour profits back into their companies, and manage their electrical business for the long-term, Griffin said.