There has been a significant trend toward industry consolidation over the past two decades. However, much of this trend has been centered on the design side of the market, with large, publicly owned companies—such as AECOM, URS and Stantec—using their financial capabilities to acquire capacity and market share. But there have been some significant acquisitions on the contracting side. For example, DPR Construction made a major move into the Southeast early this year by acquiring Atlanta-based Hardin Construction.
A few large contractors have been in acquisition mode. One major acquisition in the past year was by Granite Construction, which acquired Northbrook, Ill.-based heavy-civil contractor Kenny Construction. "Together with Kenny, our plan is to expand our presence into targeted markets such as power delivery and water-and-wastewater infrastructure, both of which have attractive long-term fundamentals," said James H. Roberts, CEO of Granite Construction, during a recent investment-analyst teleconference. He also says Kenny will bring Granite a greater presence in the Midwest market.
But some contractors have not relied on acquisitions to move into new markets. "In August of 2012, we expanded our offerings to include environmental services, specializing in assessments and abatement," says Bill Hannah, CEO of Nabholz Construction Corp. He says the firm is moving beyond its private-sector client base and now is successfully constructing public highway and street projects.
Further, many contractors are focused on making sure their size works in their favor. No stranger to acquisitions, Balfour Beatty US is interested in trying to make its parts work together. "We are not interested in size for the sake of size. We are more interested in creating synergies within our organization," says Robert Van Cleave, CEO. He says Balfour Beatty has been working with sister company Parsons Brinckerhoff on numerous projects to provide a strong combination of talent for projects.
Public vs. Private
The public-sector market has been sluggish because of declining or uncertain revenue streams. "Government work continues to be anemic," says Bart Eberwein, executive vice president of Hoffman Construction. "I am guessing that tax revenue shortfalls have caught up with most municipalities, and federal agencies are feeling [wary] about the public's appetite for capital spending when sequestration and other belt-tightening measures dominate headlines."
On the other hand, contractors working in the private sector are beginning to enjoy a market turnaround. A big factor in the private-sector recovery is that banks and other financial institutions finally are beginning to lend on projects. "We are seeing projects actually getting built as developers are able to get the necessary debt and tenants to make the economics work," says Sam Alley, CEO of VCC Construction.
Further, many firms are seeing commercial and corporate clients beginning to spend. "We've observed that companies within our core market sectors have operated conservatively, stockpiling cash and avoiding expenditures. As we see the economy continue to improve, some of that money is now being put into play," says Fred Perpall, CEO of The Beck Group. However, he says clients are more cautious today in how they approach potential projects. "They're asking for what-if scenario planning to make sure they're making the best decisions on how to deploy funds to meet business objectives and create more value," Perpall says.